In “an effort to address any potential legal uncertainty resulting from examiners’ reliance on guidance, policy statements, and similar communications as the basis for supervisory mandates,” the Bank Policy Institute and American Bankers Association submitted letters this week to petition regulators and the Consumer Financial Protection Bureau for formal rulemaking regarding the use of supervisory guidance.
Recently, and in response to growing concerns about regulators’ overreliance on guidance, bank regulators and the CFPB issued an Interagency Statement confirming that supervisory guidance does not have the force of law, and that bank examiners should not take enforcement actions based on supervisory guidance.
“The Interagency Statement, a promising step forward, reaffirms the status of guidance under existing law,” the banking groups wrote in a statement. “The question is how it changes regulatory practice. To institutionalize this recognition, and particularly to promote its prompt and consistent observance by examiners and other agency personnel, [we] are asking for regulators to formalize the Interagency Statement in the form of a binding regulation, so as to ensure it endures over time and is followed consistently across the country.”
Despite “the helpful text” of the Interagency Statement, we are concerned that it may nevertheless leave room for examiners to continue to base examination criticisms on matters not based in law, the petitions say.
The petition process allows for individuals and groups to request specific regulatory changes. It will be up to the agencies to determine whether to accept or deny the requests.
“A formal rulemaking would be an explicit recognition by the agencies that current and future examiners will be bound by this statement, which will provide greater clarity to the examination process,” the groups say. “This is key as, in recent years, failure to comply with guidance has too often resulted in the issuance of Matters Requiring Attention based on neither law nor regulation.”
An MRA serves as a quasi-enforcement action, and the banking agencies have routinely taken the position that an institution may not expand by acquisition, investment, or branching until any MRAs have been remediated. The Interagency Statement, the trade groups say, includes “unclear language regarding how guidance could be used beyond raising issues of supervisory concern with an institution (such as MRAs), straying into explicit enforcement action unsupported by law.”
The Interagency guidance—issued by the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency on Sept. 11—had a stated goal of “clarifying the role of supervisory guidance and to describe the agencies’ approach to supervisory guidance.”
It “confirms 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 regulators clarified the following policies and practices related to supervisory guidance:
They intend to limit the use of numerical thresholds or other “bright-lines” in describing expectations in supervisory guidance.
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.
In some situations, examiners may reference 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 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.
“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 agencies wrote.