Compliance Blog

On October 28, the National Credit Union Administration (NCUA) Board approved a proposed interagency rule codifying an interagency statement from September 2018 regarding the role of supervisory guidance. The NCUA joined the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Federal Reserve), Federal Deposit Insurance Corporation (FDIC) and Consumer Financial Protection Bureau (CFPB) in publishing the proposed rule in the Federal Register on November 5.

2018 Interagency Statement

NAFCU blogged about the interagency statement when it was released. The statement, which was brief, noted that “supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance.” The statement provided clarity on the following issues:

• When numerical thresholds are included in supervisory guidance to describe the agencies’ supervisory expectations, those thresholds are only examples and do not constitute requirements.
• While citations will result from violations of law or regulations, examiners may identify certain practices, which may not rise to the level of a violation of law or regulation, they deem to be unsafe or unsound. Under these circumstances, examiners may refer to 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.”
• The mere act of the agencies seeking public comment on supervisory guidance does not have the effect of transforming the supervisory guidance into a regulation or law.
• The agencies explained they would try to cut down on the issuance of redundant supervisory guidance.
• The agencies also explained they would continue to take steps to ensure examiners understand the agencies’ expectations about the role of supervisory guidance.

Proposed Rule

After the issuance of the interagency statement, the OCC, Federal Reserve, FDIC and CFPB received a petition for rulemaking asking they codify the interagency statement. As a result, the agencies issued the proposed rule.

Under the proposed rule, NCUA intends to codify the interagency statement in part 791 of its rules and regulations. In codifying the interagency statement, the proposed rule makes three substantive changes to the 2018 interagency statement. First, it clarifies matters requiring attention, matters requiring board attention, documents of resolution, and supervisory recommendations would not be based on noncompliance with supervisory guidance. Second, the proposed rule now includes a statement that:

“Supervisory criticisms should continue to be specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.”

Third, “the agencies have removed two sentences from the 2018 Statement concerning grounds for ‘citations’ and the handling of deficiencies that do not constitute violations of law.” This removes the following sentences from the first bullet point in the 2018 interagency statement under the heading “Ongoing agency efforts to clarify the role 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.”

The preamble to the proposed rule indicates that these sentences were removed because the interagency statement was designed to address the appropriate role of supervisory guidance in supervision of regulated entities and not the standards for supervisory criticism. These two sentences were deleted to limit any confusion about the rationale behind the interagency statement.

For more information about the proposed rule, please see this NAFCU Regulatory Alert. NAFCU is also submitting a comment letter to NCUA, and your credit union can submit comments to NAFCU through a link embedded in the Regulatory Alert.