House OKs TAILOR Act, requiring risk profiles be considered in new rules (updated)

Legislation that would require federal financial institution regulators to take into consideration institution risk profiles and business models when taking regulatory actions was passed by the House Wednesday.

The bill – the “Taking Account of Institutions with Low Operation Risk Act of 2017” (TAILOR Act – H.R. 1116) would also require each regulator to “look back” at the regulations adopted in the seven years prior to the bill’s introduction in the House (Feb. 16, 2017), and ending on the day the bill is enacted into law, to apply the requirements of the bill onto those regulations.

The House passed the bill (sponsored by Rep. Scott Tipton, R-Colo.) on a vote of 247-169.

In considering risk profiles of regulated institutions, the TAILOR Act would require the regulators, when considering new regulations, to: consider the risk profile and business models of institutions being regulated; determine the necessity, appropriateness, and impact of applying such regulatory action on the institutions, and; “tailor such regulatory action in a manner that limits the regulatory compliance impact, cost, liability risk, and other burdens, as appropriate, for the risk profile and business model” of the institutions.

The bill also requires regulators address “other considerations,” including:

  • the impact that such regulatory action, by itself and in the aggregate effect of other regulations, has on the ability of regulated institutions to serve evolving and diverse customer needs;
  • the potential impact of examination manuals, regulatory actions taken with respect to third-party service providers, or other regulatory directives “that may be in conflict or inconsistent with the tailoring of such regulatory action” to limit compliance impact, cost, liability risk or other burdens;
  • the underlying policy objectives of the regulatory action and statutory scheme involved.

Further, in proposing rules, the regulators would be required to disclose how the agency has addressed the considerations outlined. Beyond that, regulators would have to submit annual reports to the congressional committees (Financial Services in the House, and Banking in the Senate) on actions taken to tailor regulations under the legislation. Additionally, each agency would be required to testify before the committees on the reports submitted.

Additionally, the Federal Financial Institutions Examination Council (FFIEC) would be required to submit a report on the actions taken by its member regulators, and also testify before the panels.

Under the seven-year “look back” provisions, any agency that determines it needs to revise a rule following a review, the agency has three years to do so after enactment of the legislation.

The future of the bill may be linked to the Senate regulatory reform measure being debated now, perhaps becoming an amendment to that Senate measure when it comes to the House.