Final Risk Guidelines Represent a ‘Sea Change’ in Regulation
Last week the Office of the Comptroller of the Currency (OCC) published its final guidelines for large financial institutions regarding “heightened expecations” for the risk management. These institutions include insured national banks, federal savings associations, etc. The institutions are now required to control and manage risk-taking activities under a new written framework detailed in the guidelines. Institutions with more than $750 billion in total average consolidated assets must comply with the new guidelines immediately, whereas if a bank is currently under the $50 billion threshold (and is not covered by the guidelines due to its
parent company owning a covered institution), but that bank crosses the threshold at some point, it will have 18 months to comply.
The OCC made several key changes to the wording, including easing up on potential legal liability for board members and senior officials, and clarifying the establishment of appropriate lines of defense for risk management. The OCC is the first to administer formal guidelines detailing its expectations, which makes it a likely tool for future enforcement actions. The guidelines, issued on September 2nd, said it was the “duty” of the banks’ board of directors to “ensure” the bank was appropriately following risk governance. The guidelines also state that board members must “actively oversee” and “require” banks to take appropriate steps. An OCC offical states, “If a bank fails to meet a standard detailed in the guideline, the OCC has the discretion to require the bank to present a plan specifying the steps it will take to comply with the standard”.