US Bank Regulators Finalize Rule on 'Unsafe' Practices
A new joint rule from the OCC and FDIC defines 'unsafe or unsound practice,' limiting regulatory actions like Matters Requiring Attention (MRAs) to conduct that poses a material financial risk or is an actual violation of law.
The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have issued a joint final rule that formally defines an “unsafe or unsound practice” for supervised institutions. This is the first time the term has been formally defined, narrowing the basis for enforcement actions to practices that are contrary to prudent standards and are likely to cause material harm to an institution's financial condition or the Deposit Insurance Fund.
Sophisticated counsel care because the rule aims to provide regulatory clarity and reduce compliance burdens by focusing supervisory attention on tangible financial risks rather than on process, documentation, or reputational concerns. Matters Requiring Attention (MRAs) may now be issued only for practices meeting the new standard or for actual, not potential, violations of law. In a significant move, the FDIC is conducting a “lookback” review and expects to close out a large majority of existing supervisory criticisms that do not meet the new criteria. The rule applies only to institutions, not institution-affiliated parties. Counsel should also monitor a separate OCC proposal to distinguish between "substantive" and "technical" violations.