On November 12, OCC published standards governing the use of independent consultants in enforcement actions involving significant violations of law. The standards describe the criteria the OCC will use in determining whether to require a national bank or federal savings association to retain a consultant, as well as the institution’s obligations to ensure the consultant has sufficient independence and qualifications. Among other issues, the standards describe the process for reviewing consultant qualifications and the contractual terms for the engagement, as well as the appropriate performance oversight. Press Release. Guidance.
OCC
OCC Releases Guidance on Third-Party Relationships
On October 30, the OCC issued updated risk management guidance for national banks and federal savings associations related to third-party relationships. The banks should:
- Develop a plan that outlines the bank’s strategy, identifies the inherent risks of the activity and details how the bank will select, assess and oversee the third party;
- Perform proper due diligence to identify risks and select a third-party provider;
- Negotiate written contracts that clearly outline the rights and responsibilities of all parties;
- Conduct ongoing monitoring of the third party’s activities and performance;
- Execute a plan to terminate the relationship in a manner that allows the bank to transition the activities to another third party, bring the activities in-house or discontinue the activities;
- Provide for clear responsibilities for overseeing and managing third-party relationships and the risk management process;
- Maintain proper documentation and reporting to encourage oversight, accountability, monitoring and risk management; and
- Independently review the risk management process to enable management to assess that the bank’s process aligns with its strategy and effectively manages risks from third-party relationships.
The guidance rescinds OCC Bulletin 2001-47, “Third-Party Relationships: Risk Management Principles,” and OCC Advisory Letter 2000-9, “Third-Party Risk.” Release. Guidance.
OCC and FDIC Propose New Rule on Liquidity Risk Management
On October 30, the OCC and FDIC proposed substantively the same liquidity rule as the proposal approved by the Fed on October 24. That proposal developed by the three agencies applies to: (i) banking organizations with $250 billion consolidated assets; (ii) banking organizations with $10 billion in on-balance sheet foreign exposure; (iii) systemically important, non-bank financial institutions that do not have substantial insurance subsidiaries or substantial insurance operations; and (iv) bank and savings association subsidiaries thereof that have total consolidated assets of $10 billion (covered institutions). The proposed rule does not apply to community banks.
Covered institutions would be required to maintain a specified level of high-quality liquid assets such as central bank reserves, government and Government Sponsored Enterprise securities and corporate debt securities that can be converted easily into cash. Under the proposal, a covered institution would be required to hold such high-quality liquid assets on each business day in an amount equal to or greater than its projected cash outflows less its projected cash inflows over a 30-day period. The proposed rule is consistent with the Basel Committee’s LCR standard, but is more stringent in terms of the range of assets that will qualify and the assumed rate of outflows of certain types of funding. Release. Proposed Rule.
Joint Release on QM Fair Lending Risks
On October 22, the Fed, CFPB, FDIC, NCUA and OCC issued a joint statement to address industry questions on fair lending risks associated with offering only qualified mortgages. Joint Release. Joint Statement.
Joint Release on Borrowers Affected by Government Shutdown
On October 9, the Fed, CFPB, FDIC, NCUA and OCC issued a release encouraging financial institutions to work with borrowers affected by the government shutdown to provide workout arrangements. Joint Release.
JPMorgan Chase to Pay Penalties for Oversight Deficiencies
On September 19, JPMorgan Chase entered into a consent Order of Assessment of a Civil Money Penalty with the Fed, the OCC, the SEC and the Financial Conduct Authority of the United Kingdom. The penalties issued by the agencies total approximately $920 million. The fine resulted from the deficiencies identified by the regulators in JPMorgan Chase’s risk management oversight, model validation, internal financial reporting and internal audit, and failure to elevate certain issues to the attention of the board of directors. In a separate action, the OCC and CFPB ordered JPMorgan Chase to refund $309 million for illegal credit card practices and to pay $80 million in civil penalties. Fed Release. CFPB Release. Fed Consent Order. OCC Consent Order.
Joint Proposal on Risk Retention
On August 28, the FDIC, Fed, FHFA, OCC, SEC and HUD issued a notice of revised proposed rulemaking relating to required risk retention by sponsors in securitization transactions. The proposed rule would define “qualified residential mortgage” (QRM) in the same way that the CFPB has defined qualified mortgages (QMs) and would exempt securitizations of QRMs from the risk retention requirements. Comments on the revised proposed rule must be submitted by October 30. Joint Release. Proposed Rule.
Joint Release on Stress-Test Guidance
On July 30, the FDIC, Fed and OCC released a request for comment on proposed guidance describing supervisory expectations for stress tests required by the Dodd-Frank Act to be conducted on medium-sized financial companies (with total consolidated assets between $10 billion and $50 billion). Comments on the proposed guidance must be submitted by September 25. Joint Release. Proposed Guidance.
Appraisal Exemption for Higher-Priced Mortgages
On July 10, the Fed, the CFPB, the FDIC, the FHFA and the OCC issued a joint proposed rule which would create exemptions from certain appraisal requirements for a subset of higher-priced mortgage loans. The proposed rule would provide exemptions for: (i) transactions secured by existing manufactured homes and not land; (ii) certain “streamlined” refinancings; and (iii) transactions of $25,000 or less. Comments must be received on or before September 9. Joint Release. Proposed Rule.
Joint Proposal on Leverage Ratio Standards
On July 9, the Fed, the FDIC and the OCC issued a joint proposed rule to strengthen the leverage ratio standards for large, systemically significant U.S. banking organizations. Under the proposed rule, bank holding companies with more than $700 billion in consolidated total assets or $10 trillion in assets under custody (covered BHCs) would be required to maintain a tier 1 capital leverage buffer of at least 2 percent above the minimum supplementary leverage ratio requirement of 3 percent, for a total of 5 percent. The proposed rule would be effective on January 1, 2018. Comments must be submitted within 60 days of publication in the Federal Register. Joint Release. Proposed Rule.