Regulators issue five policies and practices for ‘clarifying’ use of supervisory guidance

Five policies and practices aimed to clarify use of supervisory guidance were issued in a joint statement Tuesday by the five federal financial institution regulatory agencies, which the agencies said were meant to clarify that supervisory guidance doesn’t have the force of law – and that the agencies do not take enforcement actions based on the guidance.

The five policies and practices outlined by the agencies are: limiting use of numerical thresholds or other “bright-lines” in describing their expectations; not criticizing a financial institution for a “violation” of guidance; reserving the option to seek public comment on guidance; reducing the issuance of multiple supervisory guidance documents on the same topic; and continuing efforts to make the role of supervisory guidance clear in communications.

On Thursday, leaders of four of the group of five regulators (all but a representative of the BCFP) had been scheduled to testify before the Senate Banking Committee. Their testimony is supposed to focus on implementation of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155), the regulatory relief legislation, enacted into law this past spring. However, the hearing was postponed as of Tuesday; no new date has been announced.

In the statement – released by the Federal Reserve, Bureau of Consumer Financial Protection (BCFP, formerly known as the CFPB), the Federal Deposit Insurance Corp. (FDIC), National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) – the agencies said that supervisory guidance can outline their supervisory expectations or priorities and articulate the agencies’ general views regarding appropriate practices for a given subject area.

Guidance, the agencies said, can provide examples of practices that the agencies generally consider consistent with safety-and-soundness standards or other applicable laws and regulations, including those designed to protect consumers. “Supervised institutions at times request supervisory guidance, and such guidance is important to provide insight to industry, as well as supervisory staff, in a transparent way that helps to ensure consistency in the supervisory approach,” the agencies point out in the statement.

The five policies and practices related to supervisory guidance that the statement, they said, are intended to clarify that:

  • The agencies intend to limit the use of numerical thresholds or other “bright-lines” in describing expectations in supervisory guidance. Where numerical thresholds are used, the agencies intend to clarify that the thresholds are exemplary only and not suggestive of requirements. The agencies will continue to use numerical thresholds to tailor, and otherwise make clear, the applicability of supervisory guidance or programs to supervised institutions, and as required by statute.
  • Examiners will not criticize a supervised financial institution for a “violation” of supervisory guidance. Rather, any citations will be for violations of law, regulation, or non-compliance with enforcement orders or other enforceable conditions. During examinations and other supervisory activities, examiners may identify unsafe or unsound practices or other deficiencies in risk management, including compliance risk management, or other areas that do not constitute violations of law or regulation. 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.
  • Agencies may continue to seek, as at times in the past, public comment on supervisory guidance. Seeking public comment on supervisory guidance does not mean that the guidance is intended to be a regulation or have the force and effect of law. The comment process helps the agencies to improve their understanding of an issue, to gather information on institutions’ risk management practices, or to seek ways to achieve a supervisory objective most effectively and with the least burden on institutions.
  • The agencies will aim to reduce the issuance of multiple supervisory guidance documents on the same topic and will generally limit such multiple issuances going forward.
  • The agencies will continue efforts to make the role of supervisory guidance clear in their communications to examiners and to supervised financial institutions, and encourage supervised institutions with questions about this statement or any applicable supervisory guidance to discuss the questions with their appropriate agency contact.

Agencies issue statement reaffirming the role of supervisory guidance

Be the first to comment

Leave a Reply

Your email address will not be published.