Weiner Brodsky Kider PC

The Federal Reserve Board (FRB) recently proposed new risk management guidance (Proposed Guidance) that would clarify the FRB’s expectations for large financial institutions (LFIs).  The Proposed Guidance is part of the FRB’s broader initiative to develop a new supervisory rating system for LFIs.

The Proposed Guidance identifies core principles for effective senior management, the management of business lines, and independent risk management and controls.  Senior management, which includes those directly accountable to the board of directors, would be responsible for ensuring: (i) safety and soundness; (ii) compliance with laws and regulations; (iii) internal policies and procedures; and (iv) overseeing business lines and independent risk management and controls.  Business line management, which includes those responsible for a business line, would be responsible for: (i) executing business line activities consistent with the LFI’s strategy and risk tolerance; (ii) identifying and managing risk within the business line; (iii) providing sufficient resources and infrastructure to the business line; (iv) ensuring the business line has the appropriate internal controls; and (v) ensuring the business line operates according to established policies and procedures and applicable laws and regulations.  Independent risk management and controls would include: (i) evaluating risk tolerance; (ii) establishing and monitoring enterprise-wide risk limits; (iii) identifying, measuring, and aggregating risks; (iv) providing independent risk profile assessments; and (v) providing risk reports to the board of directors and senior management.

LFIs to which the Proposed Guidance would apply include domestic bank holding companies and savings and loan holding companies with total consolidated assets of $50 billion or more; U.S. operations of foreign banking organizations with combined U.S. assets of $50 billion or more; any state member bank subsidiaries of the foregoing; and systematically important nonbank financial companies designated by the Financial Stability Oversight Council for supervision by the FRB.

The FRB is accepting comments on the Proposed Guidance through March 15, 2018.

The Proposed Guidance can be viewed here: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180104a1.pdf.