OCC Proposes Formal “Heightened Expectations” For Large Banks, Other Complex Institutions

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On January 16, the OCC released proposed guidelines to establish “heightened expectations” for large banks—those with $50 billion or more in total consolidated assets—and any other institution the OCC deems to be complex or to otherwise present a heightened risk. The OCC, which has been advising large and medium banks of these expectations on an informal basis since 2010, states that the proposed guidelines set forth the minimum standards for the design and implementation of an institution’s risk governance framework and provide minimum standards for oversight by the board of directors. The guidelines include provisions regarding: (i) the roles and responsibilities of front line units, independent risk management, and internal audit; (ii) a comprehensive written statement that articulates the bank’s risk appetite, which serves as a basis for the risk governance framework and should include both qualitative components and quantitative limits; (iii) board of directors’ oversight of a bank’s compliance with safe and sound banking practices, including to ensure that the bank establishes and implements an effective and compliant risk governance framework; (iv) active board oversight of a bank’s risk-taking activities, including by establishing accountability for management’s adherence to the risk governance framework and evaluating management’s recommendations and decisions; and (v) composition of the board of directors, which should have at least two independent members. The OCC explains that it is proposing the expectations as guidelines as opposed to regulations to allow it flexibility to pursue the course of action that is most appropriate given the specific circumstances of a bank’s noncompliance, and given the bank’s self-corrective and remedial responses. Still, if a bank fails to meet a standard, the OCC may require the institution to submit a compliance plan and can issue an enforceable order if the institution fails to submit an acceptable compliance plan or fails materially to comply with an OCC-approved plan. Comments on the proposal are due within 60 days of publication in the Federal Register.

Topics:  Banks, Board of Directors, Compliance, Nonbank Firms, OCC

Published In: Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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