By: Edward R. Milhorn, Compliance Consulting Director
On January 19, 2021, the Federal Deposit Insurance Corporation (“FDIC”), the Office of the Comptroller of the Currency (“OCC”), the National Credit Union Administration (“NCUA”) and the Consumer Financial Protection Bureau (“Bureau”) issued final rules clarifying and codifying the role of supervisory guidance. Specifically, these final rules codify the “Interagency Statement Clarifying the Role of Supervisory Guidance” (“Statement”), which was issued by the agencies in September 2018. By codifying the Statement, the contents of the Statement become legally binding for the agencies, which confirms that the agencies will continue to follow and respect the limits of administrative law in carrying out their supervisory responsibilities.
The Statement sought to clarify that supervisory guidance does not establish rules having the force and effect of law, unlike rules adopted through a formal rulemaking process. Instead, as noted in the final rules, supervisory guidance advises the public “prospectively of the manner in which the agency proposes to exercise a discretionary power” and does not create binding legal obligations. Further, supervisory guidance typically clarifies agency expectations and priorities, and provides much-needed examples of what is considered to be acceptable practices in complying with regulatory requirements and other industry standards.
The Statement’s proposed rules were adopted without significant changes, and among the notable information, the final rules clarify that the agencies intend to:
- Limit the use of numerical thresholds in guidance
- Reduce the issuance of multiple supervisory guidance documents on the same topic
- Make the role of supervisory guidance clear in communications to examiners and supervised institutions
- Encourage supervised institutions to discuss their concerns about supervisory guidance with their agency contact
Although the final rule signals that the agencies will not cite an institution for a “violation” of guidance, it is important to remember that the guidance issued by regulators will remain an important resource for financial institutions when developing or amending their compliance management systems (CMS), or components of their CMS. Institutions who are subject to the agencies’ oversight should not overlook past and future guidance and compliance aids, as they will continue to be both an important part of any entity’s preparation for supervision, as well as an essential tool for managing their CMS.
As previously noted, the agencies adopted the final rule on an agency-by-agency basis, as opposed to a joint final rulemaking, noting that “having separate final rules has enabled agencies to better focus on explaining any agency-specific issues to their respective audiences of supervised institutions and agency employees.” In addition to the agencies mentioned in this article, the Federal Reserve is also expected to adopt similar rules in the near future. For those interested in seeing the final rules for each agency, you can find the rules at the following links: