One of the latest interagency policy statements may be letting some government offices off the hook.
On June 12, 2018, the Federal Financial Institutions Examination Council (FFIEC) rescinded a 1997 policy statement that was immediately replaced by the three main banking agencies. The replacement released by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), and the Federal Deposit Insurance Corporation (FDIC), continues their longstanding policy of notifying one another when issuing enforcement actions against financial institutions they may be interested in pursuing as well.
Titled the “Policy Statement on Interagency Notification of Formal Enforcement Actions,” the new statement encourages the three agencies (referred to as the federal banking agencies, or “FBAs”) to notify one another of enforcement actions against financial institutions as early as possible, in order to foster coordination. Each FBA must determine whether an action they are pursuing against a financial institution “involves the interests” of another agency. Generally, the OCC maintains jurisdiction over national banks and savings and loan associations, the FRB supervises state-chartered banks that are members of the Federal Reserve System, and the FDIC covers the state-chartered banks that are not members. If an agency finds that its action does involve the interests of another FBA, it should notify them either when written notification is sent to the party in question, or when the agency officials determine that formal action will be taken (whichever is earlier).
The statement gives the FBAs broad discretion in determining what must be included in interagency notices, stating that it depends on the “gravity” of the agency’s interests, but that it should be sufficient to allow them to take necessary action. In addition, if two or more FBAs consider bringing complementary actions (e.g., when one agency brings an action against a bank and another against the bank’s parent holding company), they “should coordinate the preparation, processing, presentation, potential penalties, service, and follow-up” of the enforcement actions.
In the Council’s rescission statement, the council explained its belief that the 1997 policy was out of date: “[The policy] was created at a time when electronic communication was much less common than it is today.” The council notes that the FBAs now publish when actions are taken on their separate websites, rendering written notification of such actions unnecessary. Although such publishing does not happen as early as the policy previously encouraged, the FFIEC also points to the new policy, which continues to support early notification and coordination between the three FBAs.
Although the main tenets of the 1997 version are being maintained, the new policy does deviate from the 1997 version in several ways. The 1997 policy affected more agencies, particularly by including state supervisory authorities. Furthermore, it affected all five of the FFIEC member regulators (the FRB, the OCC, the FDIC, the National Credit Union Association (NCUA), and the Consumer Financial Protection Bureau (CFPB)) as opposed to the new policy, which only covers the first three.
In addition to supporting notification once a formal action has been initiated, the previous policy also supported notification of informal actions when against parties with an affiliation or other inter-institutional relationship that affects another agency’s jurisdiction.
The new policy could be interpreted as a regulatory compromise on previous attempts at banking reform. H.R. 10, or the Financial CHOICE Act, included a section on enforcement coordination among the federal financial agencies. The bill would have required eight agencies (the FRB, CFPB, FDIC, OCC, the Commodity Futures Trading Commission (CFTC), the Federal Housing Finance Agency (FHFA), and the Securities and Exchange Commission (SEC)) to implement policies and procedures that would “minimize duplication” of enforcement actions against financial institutions between federal and state authorities. Section 391 also would have required the eight agencies to establish when joint investigations and actions would be in the public interest, and procedures for deciding upon a “lead agency” in these situations to avoid duplication of efforts and “ensure consistent enforcement.”
The CHOICE Act was never voted upon by the Senate, and was later replaced by S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, as the main vehicle for banking reform. While the latter bill was signed into law in May, it did not include a section on interagency enforcement coordination. House Republicans claim that further banking reform bills are yet to come; so heavier enforcement coordination legislation may come in the near future. While this interagency policy presents a slighter version, it may serve as a regulatory holdover until then.
For more information on both regulatory and legislative banking regulation reform efforts, see Bloomberg Law’s In Focus: Financial Regulation Watch page.
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