US Regulators Propose a Rule to Distinguish Guidance from Regulation

Wading into the “vexing conundrum of administrative law”¹ and responding to a November 5, 2018, petition (Petition)² for them to do so, on October 20, 2020, the Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (FRB); Federal Deposit Insurance Corporation (FDIC); National Credit Union Administration (NCUA); and Bureau of Consumer Financial Protection (“CFPB” and, together with the OCC, FRB, FDIC and NCUA, the “Agencies”) issued a notice of proposed rulemaking (NPR) to codify the Interagency Statement Clarifying the Role of Supervisory Guidance issued by the Agencies on September 11, 2018 (2018 Statement).

According to the Agencies, the NPR would codify the 2018 Statement in a proposed interagency statement (Statement), the text of which is set forth in the NPR’s Appendix A and restates existing law and reaffirms the Agencies’ understanding that supervisory guidance does not create binding, enforceable legal obligations. The Statement reaffirms that the Agencies do not issue supervisory “criticisms” for “violations” of supervisory guidance and describes the appropriate use of supervisory guidance by the Agencies. In the 2018 Statement, the Agencies also expressed their intention to (1) limit the use of numerical thresholds in guidance; (2) reduce the issuance of multiple supervisory guidance on the same topic; (3) continue efforts to make the role of supervisory guidance clear in communications to examiners and supervised institutions; and (4) encourage supervised institutions to discuss their concerns about supervisory guidance with their appropriate agency contact. In addition, the Statement would supersede the 2018 Statement and, as requested by the petitioners, would be binding on each Agency.

The Petition expressed support for the 2018 Statement and acknowledged that it addresses many issues of concern for the petitioners relating to the use of supervisory guidance. The Petition expressed concern, however, that the 2018 Statement’s reference to not basing “criticisms” on “violations” of supervisory guidance has led to confusion about whether matters requiring attention and matters requiring immediate attention (collectively, “MRAs”) are covered by the 2018 Statement.

Accordingly, the Agencies are clarifying in the proposed Statement that the term “criticize” includes the issuance of MRAs and other supervisory criticisms, including those communicated through matters requiring board attention, documents of resolution and other supervisory recommendations (collectively, “supervisory criticisms”).

With this clarification, the Agencies are reiterating that examiners will not base supervisory criticisms on a “violation” of or “non-compliance with” supervisory guidance. The Agencies note that, in some situations, examiners may reference (including in writing) supervisory guidance to provide examples of safe and sound conduct, appropriate consumer protection and risk management practices, and other actions for addressing compliance with laws or regulations. The Agencies also reiterate that they will not issue an enforcement action on the basis of a “violation” of or “non-compliance” with supervisory guidance. The NPR reflects these clarifications.

If adopted in the proposed form, the Statement would make the “Ball of Confusion” regarding covered supervisory guidance a little less confusing.

Comments on the NPR must be received within 60 days of the publication of the NPR in the Federal Register and should be made in the manner provided in the NPR.