On October 29, 2020, five federal financial regulatory agencies, the FRB, CFPB, FDIC, NCUA and the OCC (the “Agencies”), jointly issued a proposed rule outlining and confirming the Agencies’ use of supervisory guidance for regulated institutions. The proposed rule intends to codify the Agencies’ Interagency Statement Clarifying the Role of Supervisory Guidance that was issued by the Agencies in September 2018 (the “2018 Statement”), with certain amendments and clarification (the “Proposed Statement”). The Proposed Statement would supersede the 2018 Statement and is attached as Appendix A to this proposed rule. Comments to this proposed rule must be received within 60 days from the date of its publication in the federal register.
As a background, the Agencies regularly provide supervisory guidance to their respective supervised financial institutions. Supervisory guidance include, among others, interagency statements, advisories, bulletins, policy statements, questions and answers, and frequently asked questions. Supervisory guidance outlines the Agencies’ supervisory expectations or priorities and articulates the Agencies’ general views regarding appropriate practices for a given subject area. Supervisory guidance often provides examples of practices that mitigate risks, or that the agencies generally consider to be consistent with safety-and-soundness standards or other applicable laws and regulations, including those designed to protect consumers.
Supervisory guidance does not have the force and effect of law. In contrast, regulations do have the force and effect of law and enforcement actions can be taken if regulated institutions are in violation. Regulations are also generally required to go through the notice and comment process.
Like the 2018 Statement, the Proposed Statement reaffirms that supervisory guidance does not create binding, enforceable legal obligations. It also reaffirms that the Agencies will not issue supervisory criticisms for “violations” of or “non-compliance” with supervisory guidance. The Proposed Statement clarifies that criticism includes those communicated by examiners through the issuance of matters requiring attention, matters requiring immediate attention, matters requiring board attention, documents of resolution, and supervisory recommendations. The Proposed Statement further clarifies that, in some situations, examiners may reference (including in writing) supervisory guidance to provide examples of safe and sound conduct, appropriate consumer protection and risk management practices, and other actions for addressing compliance with laws or regulations.
The Proposed Statement also clarifies that supervisory criticism would be specific reference to the practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, or that could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.
Importantly, the proposed rule would provide that the Proposed Statement is binding on the Agencies.
Takeaways
The proposed rule will provide additional certainty on supervisory guidance for the regulated financial institutions. Importantly, it will bind the Agencies to the Proposed Statement’s terms.
Regulated financial institutions should review this proposal and, to the extent they identify ambiguities or other required clarification or amendments to the rule or Proposed Statement, consider providing comments to their respective regulatory agency.
If you have any questions concerning this proposed rule or need assistance in preparing comments, please contact Solomon Maman.
Author
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Solomon has nearly two decades of experience representing financial institutions, real estate investors and privately owned business entities. Solomon concentrates his practice in the areas of banking, consumer financial services, real estate, business law and related litigation and appellate practice.
