9253 Rules And Regulations Federal Register

9254Federal Register / Vol. 86, No. 28 / Friday, February 12, 2021 / Rules and RegulationsStatement, with amendments, the finalrule confirms that the OCC willcontinue to follow and respect the limitsof administrative law in carrying out itssupervisory responsibilities. The 2018Statement reiterated well-establishedlaw by stating that, unlike a law orregulation, supervisory guidance doesnot have the force and effect of law. Assuch, supervisory guidance does notcreate binding legal obligations for thepublic. Because it is incorporated intothe final rule, the 2018 Statement, asamended, is binding on the OCC. Thefinal rule adopts the rule as proposedwithout substantive change.DATES: This final rule is effective onMarch 15, 2021.FOR FURTHER INFORMATION CONTACT:Mitchell Plave, Special Counsel, (202)649–5490; or Henry Barkhausen,Counsel, Chief Counsel’s Office (202)649–5490; or Steven Key, AssociateDeputy Comptroller for BankSupervision Policy, (202) 649–6770,Office of the Comptroller of theCurrency, 400 7th Street SW,Washington, DC 20219.SUPPLEMENTARY INFORMATION:I. BackgroundThe OCC recognizes the importantdistinction between issuances that serveto implement acts of Congress (knownas ‘‘regulations’’ or legislative rules’’)and non-binding supervisory guidancedocuments.1 Regulations create bindinglegal obligations. Supervisory guidanceis issued by an agency to ‘‘advise thepublic prospectively of the manner inwhich the agency proposes to exercisea discretionary power’’ and does notcreate binding legal obligations.2In recognition of the importantdistinction between rules and guidance,on September 11, 2018, the agenciesissued the Interagency StatementClarifying the Role of SupervisoryGuidance (2018 Statement) to explainthe role of supervisory guidance anddescribe the agencies’ approach tosupervisory guidance.3 As noted in the2018 Statement, the agencies issuevarious types of supervisory guidance totheir respective supervised institutions,including, but not limited to,1 Regulations are commonly referred to aslegislative rules because regulations have the ‘‘forceand effect of law.’’ Perez v. Mortgage BankersAssociation, 575 U.S. 92, 96 (2015) (citationsomitted).2 See Chrysler v. Brown, 441 U.S. 281, 302 (1979)(quoting the Attorney General’s Manual on theAdministrative Procedure Act at 30 n.3 (1947)(Attorney General’s Manual) and discussing thedistinctions between regulations and generalstatements of policy, of which supervisory guidanceis one form).3 See 18/nr-ia-2018-97a.pdf.VerDate Sep 11 201416:41 Feb 11, 2021Jkt 253001interagency statements, advisories,bulletins, policy statements, questionsand answers, and frequently askedquestions. Supervisory guidanceoutlines the agencies’ supervisoryexpectations or priorities and articulatesthe agencies’ general views regardingpractices for a given subject area.Supervisory guidance often providesexamples of practices that mitigate risks,or that the agencies generally considerto be consistent with safety-andsoundness standards or other applicablelaws and regulations, including thosedesigned to protect consumers.4 Theagencies noted in the 2018 Statementthat supervised institutions at timesrequest supervisory guidance and thatguidance is important to provide clarityto these institutions, as well assupervisory staff, in a transparent waythat helps to ensure consistency in thesupervisory approach.5The 2018 Statement restated existinglaw and reaffirmed the agencies’understanding that supervisoryguidance does not create binding,enforceable legal obligations. The 2018Statement reaffirmed that the agenciesdo not issue supervisory criticisms for‘‘violations’’ of supervisory guidanceand described the appropriate use ofsupervisory guidance by the agencies. Inthe 2018 Statement, the agencies alsoexpressed their intention to (1) limit theuse of numerical thresholds inguidance; (2) reduce the issuance ofmultiple supervisory guidancedocuments on the same topic; (3)continue efforts to make the role ofsupervisory guidance clear incommunications to examiners and4 While supervisory guidance offers guidance tothe public on the OCC’s approach to supervisionunder statutes and regulations and safe and soundpractices, the issuance of guidance is discretionaryand is not a prerequisite to the OCC’s exercise ofits statutory and regulatory authorities. This pointreflects the fact that statutes and legislative rules,not statements of policy, set legal requirements.5 The Administrative Conference of the UnitedStates (ACUS) has recognized the important role ofguidance documents and has stated that guidancecan ‘‘make agency decision-making morepredictable and uniform and shield regulatedparties from unequal treatment, unnecessary costs,and unnecessary risk, while promoting compliancewith the law.’’ ACUS, Recommendation 2017–5,Agency Guidance Through Policy Statements at 2(adopted December 14, 2017), available at ethrough-policy-statements. ACUS also suggests that‘‘policy statements are generally better [thanlegislative rules] for dealing with conditions ofuncertainty and often for making agency policyaccessible.’’ Id. ACUS’s reference to ‘‘policystatements’’ refers to the statutory text of the APA,which provides that notice and comment is notrequired for ‘‘general statements of policy.’’ Thephrase ‘‘general statements of policy’’ hascommonly been viewed by courts, agencies, andadministrative law commentators as including awide range of agency issuances, including guidancedocuments.PO 00000Frm 00002Fmt 4700Sfmt 4700supervised institutions; and (4)encourage supervised institutions todiscuss their concerns aboutsupervisory guidance with their agencycontact.On November 5, 2018, the OCC,Board, FDIC, and Bureau each receiveda petition for a rulemaking (Petition), aspermitted under the AdministrativeProcedure Act (APA),6 requesting thatthe agencies codify the 2018 Statement.7The Petition argued that a rule onguidance is necessary to bind futureagency leadership and staff to the 2018Statement’s terms. The Petition alsosuggested there are ambiguities in the2018 Statement concerning howsupervisory guidance is used inconnection with matters requiringattention, matters requiring immediateattention (collectively, MRAs), as wellas in connection with other supervisoryactions that should be clarified througha rulemaking. Finally, the Petitioncalled for the rulemaking to implementchanges in the agencies’ standards forissuing MRAs. Specifically, the Petitionrequested that the agencies limit the roleof MRAs to addressing circumstances inwhich there is a violation of a statute,regulation, or order, or demonstrablyunsafe or unsound practices.II. The Proposed Rule and CommentsReceivedOn November 5, 2020, the agenciesissued a proposed rule (Proposed Ruleor Proposal) that would have codifiedthe 2018 Statement, with clarifyingchanges, as an appendix to proposedrule text.8 The Proposed Rule wouldhave superseded the 2018 Statement.The rule text would have provided thatan amended version of the 2018Statement is binding on each respectiveagency.Clarification of the 2018 StatementThe Petition expressed support for the2018 Statement and acknowledged thatit addresses many issues of concern forthe Petitioners relating to the use ofsupervisory guidance. The Petitionexpressed concern, however, that the2018 Statement’s reference to not basing‘‘criticisms’’ on violations ofsupervisory guidance has led toconfusion about whether MRAs arecovered by the 2018 Statement.65U.S.C. 553(e).Petition for Rulemaking on the Role ofSupervisory Guidance, available at https://bpi.com/wp-content/uploads/2018/11/BPI PFR on Role ofSupervisory Guidance Federal Reserve.pdf. ThePetitioners did not submit a petition to the NCUA,which has no supervisory authority over thefinancial institutions that are represented byPetitioners. The NCUA chose to join the ProposedRule on its own initiative.8 85 FR 70512 (November 5, 2020).7 SeeE:\FR\FM\12FER1.SGM12FER1

Federal Register / Vol. 86, No. 28 / Friday, February 12, 2021 / Rules and RegulationsAccordingly, the agencies proposed toclarify in the Proposed Rule that theterm ‘‘criticize’’ includes the issuance ofMRAs and other supervisory criticisms,including those communicated throughmatters requiring board attention,documents of resolution, andsupervisory recommendations(collectively, supervisory criticisms).9As such, the agencies reiterated thatexaminers will not base supervisorycriticisms on a ‘‘violation’’ of or ‘‘noncompliance with’’ supervisoryguidance.10 The agencies noted that, insome situations, examiners mayreference (including in writing)supervisory guidance to provideexamples of safe and sound conduct,appropriate consumer protection andrisk management practices, and otheractions for addressing compliance withlaws or regulations. The agencies alsoreiterated that they will not issue anenforcement action on the basis of a‘‘violation’’ of or ‘‘non-compliance’’with supervisory guidance. TheProposed Rule reflected theseclarifications.11The Petition requested further thatthese supervisory criticisms should notinclude ‘‘generic’’ or ‘‘conclusory’’references to safety and soundness. Theagencies agreed that supervisorycriticisms should continue to be specificas to practices, operations, financial9 The agencies use different terms to refer tosupervisory actions that are similar to MRAs andMatters Requiring Immediate Attention (MRIAs),including matters requiring board attention(MRBAs), documents of resolution, and supervisoryrecommendations.10 For the sake of clarification, one source of lawamong many that can serve as a basis for asupervisory criticism is the Interagency GuidelinesEstablishing Standards for Safety and Soundness,see 12 CFR part 30, appendix A, 12 CFR part. 208,appendix D–1, and 12 CFR part 364, appendix A.These Interagency Guidelines were issued usingnotice and comment and pursuant to expressstatutory authority in 12 U.S.C. 1831p–1(d)(1) toadopt safety and soundness standards either by‘‘regulation or guideline.’’11 The 2018 Statement contains the followingsentence:Examiners will not criticize a supervisedfinancial institution for a ‘‘violation’’ of supervisoryguidance.2018 Statement at 2. As revised in the ProposedRule, this sentence read as follows:Examiners will not criticize (including throughthe issuance of matters requiring attention, mattersrequiring immediate attention, matters requiringboard attention, documents of resolution, andsupervisory recommendations) a supervisedfinancial institution for, and agencies will not issuean enforcement action on the basis of, a ‘‘violation’’of or ‘‘non-compliance’’ with supervisory guidance.Proposed Rule (emphasis added). As discussedinfra in footnote 13, the Proposed Rule alsoremoved the sentences in the 2018 Statement thatreferred to ‘‘citation,’’ which the Petition suggestedhad been confusing. These sentences were alsoremoved to clarify that the focus of the ProposedRule related to the use of guidance, not thestandards for MRAs.VerDate Sep 11 201416:41 Feb 11, 2021Jkt 253001conditions, or other matters that couldhave a negative effect on the safety andsoundness of the financial institution,could cause consumer harm, or couldcause violations of laws, regulations,final agency orders, or other legallyenforceable conditions. Accordingly, theagencies included language reflectingthis practice in the Proposed Rule.The Petition also suggested thatMRAs, as well as memoranda ofunderstanding, examinationdowngrades, and any other formalexamination mandate or sanction,should be based only on a violation ofa statute, regulation, or order, includinga ‘‘demonstrably unsafe or unsoundpractice.’’ 12 As noted in the ProposedRule, examiners all take steps to identifydeficient practices before they rise toviolations of law or regulation or beforethey constitute unsafe or unsoundbanking practices. The agencies statedthat they continue to believe that earlyidentification of deficient practicesserves the interest of the public and ofsupervised institutions. Earlyidentification protects the safety andsoundness of banks, promotes consumerprotection, and reduces the costs andrisk of deterioration of financialcondition from deficient practicesresulting in violations of laws orregulations, unsafe or unsoundconditions, or unsafe or unsoundbanking practices. The Proposed Rulealso noted that the agencies havedifferent supervisory processes,including for issuing supervisorycriticisms. For these reasons, theagencies did not propose revisions totheir respective supervisory practicesrelating to supervisory criticisms.The agencies also noted that the 2018Statement was intended to focus on theappropriate use of supervisory guidancein the supervisory process, rather thanthe standards for supervisory criticisms.To address any confusion concerningthe scope of the 2018 Statement, theProposed Rule removed two sentencesfrom the 2018 Statement concerninggrounds for ‘‘citations’’ and the12 The Petition asserted that the federal bankingagencies rely on 12 U.S.C. 1818(b)(1) when issuingMRAs based on safety-and-soundness matters.Through statutory examination and reportingauthorities, Congress has conferred upon theagencies the authority to exercise visitorial powerswith respect to supervised institutions. TheSupreme Court has indicated support for a broadreading of the agencies’ visitorial powers. See, e.g.,Cuomo v. Clearing House Assn L.L.C., 557 U.S. 519(2009); United States v. Gaubert, 499 U.S. 315(1991); and United States v. Philadelphia Nat.Bank, 374 U.S. 321 (1963). The visitorial powersfacilitate early identification of supervisoryconcerns that may not rise to a violation of law,unsafe or unsound banking practice, or breach offiduciary duty under 12 U.S.C. 1818.PO 00000Frm 00003Fmt 4700Sfmt 47009255handling of deficiencies that do notconstitute violations of law.13Comments on the Proposed RuleA. OverviewThe five agencies receivedapproximately 30 unique commentsconcerning the Proposed Rule.14 TheOCC discusses below those commentsthat are potentially relevant to theOCC.15 Commenters representing tradeassociations for banking institutions andother businesses, state bankers’associations, individual financialin

9254 Federal Register/Vol. 86, No. 28/Friday, February 12, 2021/Rules and Regulations 1 Regulations are commonly referred to as legislative rules because regulations have the ‘‘force and effect of law.’’ Perez v.Mortgage Bankers Association, 575 U.S. 92, 96 (2015) (citations omitted). 2 See Chrysler v.Brown, 441 U.S. 281,