State regulators rolled out a proposal to modernize a part of the Nationwide Multistate Licensing System
The Conference of State and Bank Supervisors, in tandem with the NMLS Policy Committee, is looking to update the main database of records for non-depository financial institutions by making changes to reporting requirements. Updates to the system happen on a quarterly basis.
A more detailed look of the proposal shows that lenders and servicers may have to start providing more nuanced information about the makeup of their organization, as well as reporting incidents that impact their financial wherewithal. Feedback from the industry is due May 15.
"This [proposal] is part of a licensing framework that will standardize the approach for companies seeking licensure in NMLS," said a spokeswoman from CSBS in a written statement. "[It] strives to reduce one-off requirements so that servicers and lenders spend less time applying for a license."
The proposal could require lenders to disclose risk-prone incidents such as cybersecurity breaches, termination of a line of credit, or a modification of an arrangement between a nonbank and a third party that may impact the lender's ability to do business. The implementation of said requirements in NMLS "has not been determined," the spokeswoman said.
Additionally, the draft looks to expand the information lenders and servicers provide about the inner workings of their organizations. A lender applying for an NMLS license will have to identify who the key individuals are in areas of management, ownership, functional risk, and industry specific roles. Nonbanks will also be required to disclose what entity provides their accounting, cloud and legal services.
Information about who runs the organization may also be expanded for financial organizations looking to get an NMLS license. A lender will have to make known all owners with a 10% or more interest in the company. And if any of these members resided outside of the country in the past 10 years, proof of a background check will need to be provided.
Currently, a lender's NMLS page is updated with information that lists out how many loan officers a lender sponsors, the address of a company's headquarters and regulatory actions. It is unclear whether any additional information will be displayed on their page if this update goes into effect.
Scott Olson, executive director of the Community Home Lenders of America, noted that his organization "supports the modernization of NMLS and the standardization of requirements." But there are "preliminary concerns that this initiative may add yet more regulatory compliance burdens, without a clear purpose."
In 2022, approximately 662,000 companies, individuals and depository institutions participated in the NMLS system. CSBS operates NMLS on behalf of state regulators.
