WASHINGTON — The Office of the Comptroller of the Currency and the FDIC said they are changing how they identify and respond to problems at banks, saying examiners should concentrate on significant financial risks and substantive violations of law rather than shortcomings involving policies, processes, documentation and other nonfinancial risks.
The OCC announced revisions Monday to its policies governing enforcement actions and Matters Requiring Attention, or MRAs, as part of what Comptroller of the Currency Jonathan V. Gould described as a return to risk-based supervision.
The changes accompany a final rule issued jointly by the OCC and Federal Deposit Insurance Corp. addressing unsafe or unsound practices and MRAs. The OCC also proposed a rule that would distinguish between substantive and technical violations of laws and regulations when determining whether an MRA is warranted.
‘Historic Steps’
“Today, the OCC is taking a number of historic steps to codify the agency’s return to risk-based supervision, helping to ensure that its more reasonable, intentional approach to bank supervision endures,” Gould said in a statement.
Gould said examiners and financial institutions should prioritize “material financial risks and substantive violations of law” over concerns involving policies, processes, documentation and other nonfinancial risks.
Enforcement Actions to Focus on Material Risks
The OCC revised its Policies and Procedures Manual governing bank enforcement actions to emphasize material financial risks and three principles the agency said should guide decisions: escalation, tailoring and limiting corrective actions to those necessary to address specific deficiencies.
The changes are intended to make enforcement actions more proportionate and predictable, according to the OCC.
The revised policy also recognizes differences between large or complex banks and community banks.
The OCC said it could escalate a matter involving a large or complex institution to an enforcement action based on practices that would not produce the same response at a community bank. The distinction reflects greater regulatory and supervisory expectations for larger and more complex institutions, the agency said.
OCC Makes MRA Policy Public
The agency also released its policy governing Matters Requiring Attention publicly for the first time.
MRAs are supervisory findings used by regulators to identify deficiencies that banks are expected to correct.
Under the revised policy, OCC examiners may issue an MRA only for practices, acts or failures to act that meet standards established under the new supervisory framework. MRAs also must be tailored based on factors related to financial risk, the OCC said.
The agency said making the policy public is intended to give banks greater clarity and transparency about when MRAs can be issued.
Proposal Would Divide Violations Into 2 Categories
Separately, the OCC issued a proposed rule that would establish two categories for violations of laws and regulations: “substantive violations” and “technical violations.”
The distinction is intended to focus supervisory attention on violations with the greatest potential impact on a bank or its customers.
Violations that do not qualify as substantive could be addressed through mechanisms other than an MRA, according to the OCC.
The agency said the approach is designed to prevent relatively minor or technical compliance issues from receiving the same supervisory treatment as violations presenting significant risks.
Comments on the proposed rule will be accepted for 30 days following its publication in the Federal Register.
Part of Broader Supervisory Shift
The OCC said the changes are part of a broader effort to reduce unnecessary regulatory burdens and tailor supervision according to an institution’s size, complexity and risk.
Among other steps, the agency has removed reputation risk from examinations, revised its Community Bank Leverage Ratio framework, eliminated certain duplicative data-collection requirements and updated model risk management guidance to emphasize a risk-based approach.
The OCC has also sought public comment on proposals to modernize bank capital requirements.
The agency said the initiatives are intended to focus supervisory resources on risks that could materially affect banks’ safety and soundness or compliance with federal law while reducing unnecessary regulatory requirements.
