Five Federal Financial Agencies Propose Rule to Clarify Role of Supervisory Guidance

On November 5, 2020, the Federal Register published five federal financial regulatory agencies’ invitation for comment on a notice of proposed rulemaking (NPR) that would codify the agencies’ Interagency Statement Clarifying the Role of Supervisory Guidance, as amended, which was issued on September 11, 2018 (2018 Statement).  The 2018 Statement reaffirmed the agencies’ understanding that they “do not take enforcement actions based on supervisory guidance.”

The five federal financial regulatory agencies that issued the 2018 Statement are the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Bureau of Consumer Financial Protection (collectively, the agencies).  Together, the agencies issued the 2018 Statement to explain the role of, and their approach to, supervisory guidance.  As noted in the 2018 Statement, the agencies issue various types of supervisory guidance, including “interagency statements, advisories, bulletins, policy statements, questions and answers, and frequently asked questions,” to their respective supervised institutions.  The 2018 Statement reaffirmed that such supervisory guidance does not create binding, enforceable legal obligations, and instead outlines the agencies’ “general views regarding appropriate practices for a given subject area.”  By codifying the 2018 Statement, the proposed rule is intended to confirm that the agencies “will continue to follow and respect the limits of administrative law in carrying out their supervisory responsibilities.”  NPR at 2.  The proposal would also confirm that the 2018 Statement, with clarifying amendments, is binding on the issuing agencies.

If finalized, the proposed rule would solidify the agencies’ specific commitments to the following:

  • limiting the use of numerical thresholds or other “bright-lines” in describing expectations in supervisory in guidance;
  • not criticizing a supervised financial institution subject to an examination for a “violation” of or “non-compliance” with supervisory guidance, and not issuing an enforcement action on the basis of the same;
  • reducing the issuance of multiple supervisory guidance on the same topic; and
  • continuing efforts to make the role of supervisory guidance clear in the agencies’ communications to examiners and supervised institutions.

Although in theory the proposed rule, if codified, would mitigate the import of the agencies’ guidance, financial institutions should note that agency examiners may still uphold supervisory guidance as demonstrating what the agency believes a statute or regulation requires.  Accordingly, while failure to follow supervisory guidance is not a legal violation, financial institutions will be wise to continue to view supervisory guidance as modeling the agencies’ expectations and best practices even once the proposed rule becomes codified.