On February 16, the OCC approved a final rule that confirms that supervisory guidance, unlike statutes or regulations, does not create binding legal obligations for the public. The final rule reaffirms that the OCC does not take enforcement actions on the basis of non-compliance with supervisory guidance. The proposed rule was published on November 5 and was adopted without material change. The final rule becomes effective on March 15. Bulletin.
On January 19, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB) published a final rule regarding the role of supervisory guidance for regulated institutions. The final rule provides that unlike a law or regulation, supervisory guidance does not have the force and effect of law, and that the Agencies will not take enforcement actions or issue supervisory criticisms based on non-compliance with supervisory guidance. The final rule provides that the proper role of supervisory guidance is to outline supervisory expectations and priorities, or articulate views regarding appropriate practices for a given subject area. FDIC Release. OCC Release. Final Rule.
On June 8, 2016, the Federal Reserve updated its Supervisory Guidance that partially supersedes SR letter 95-51, “Rating the Adequacy of Risk Management and Internal Controls at State Member Banks and Bank Holding Companies.” The guidance clarifies Board and senior management oversight of risk management, policies, procedures and limits, risk monitoring and MIS, and internal controls. One revision extends the applicability of the guidance to the U.S. operations of foreign banking organizations with total consolidated U.S. assets of less than $50 billion (such as ISP), which were not previously subject to SR 95- 51. The guidance notes, however, that FBO risk management processes and control functions for the U.S. operations may be implemented domestically or outside of the U.S. and in cases where the functions are performed outside of the U.S., the FBO’s oversight function, policies and procedures, and information systems need to be sufficiently transparent to allow U.S. supervisors to assess their adequacy.
Additionally, the FBO’s U.S. senior management need to demonstrate and maintain a thorough understanding of all relevant risks affecting the U.S. operations and the associated management information systems, used to manage and monitor these risks within the U.S. operations. With respect to Board responsibilities, the guidance states in a footnote: “For the purpose of this guidance, for foreign banking organizations, ‘board of directors’ refers to the equivalent governing body of the U.S. operations of the FBO.”
The guidance goes on further to state that:
The board of directors should collectively have a balance of skills, knowledge, and experience to clearly understand the activities and risks to which the institution is exposed. The board of directors should take steps to develop an appropriate understanding of the risks the institution faces, through briefings from experts internal to their organization and potentially from external experts. The institution’s management information systems should provide the board of directors with sufficient information to identify the size and significance of the risks. Using this knowledge and information, the board of directors should provide clear guidance regarding the level of exposures acceptable to the institution and oversee senior management’s implementation of the procedures and controls necessary to comply with approved policies, the guidance states.
On July 12, the Fed issued supervisory guidance describing an optional process for an applicant to request a response on a potential bank acquisition or other proposal before the submission of a formal application or notice. This process is expected to benefit community banking organizations that do not file applications frequently and also pre-filers with novel proposals. Fed Release.
On June 3, the FDIC, Fed, OCC, and OTS issued guidance on supervisory expectations and key considerations for an advanced measurement approach framework. The guidance focuses on the four required data elements: (i) internal operational loss event data; (ii) external operational loss event data; (iii) scenario analysis; and (iv) business environment and internal control factors. FDIC Release.
