Role of Supervisory Guidance, 7949-7958 [2021-01867]
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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations
Subpart E—Supervisory Stress Test
Requirements for Certain U.S. Banking
Organizations With $100 Billion or
More in Total Consolidated Assets and
Nonbank Financial Companies
Supervised by the Board
10. Amend § 252.44 by revising
paragraphs (a)(3) and (d) to read as
follows:
■
§ 252.44
Analysis conducted by the Board.
(a) * * *
(3) In conducting the analysis, the
Board will not incorporate changes to a
firm’s business plan that are likely to
have a material impact on the covered
company’s capital adequacy and
funding profile in its projections of
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losses, net income, pro forma capital
levels, and capital ratios.
*
*
*
*
*
(d) Frequency of analysis conducted
by the Board—(1) General. Except as
provided in paragraph (d)(2) of this
section, the Board will conduct its
analysis of a covered company
according to the frequency in Table 1 to
§ 252.44(d)(1).
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TABLE 1 TO § 252.44(D)(1)
If the covered company is a:
Then the Board will conduct its analysis:
Global systemically important BHC ..........................................................
Category II bank holding company ..........................................................
Category II U.S. intermediate holding company ......................................
Category III bank holding company .........................................................
Category III U.S. intermediate holding company .....................................
Category IV bank holding company .........................................................
Category IV U.S. intermediate holding company .....................................
Nonbank financial company supervised by the Board .............................
Annually.
Annually.
Annually.
Annually.
Annually.
Biennially, occurring in each year ending in an even number.
Biennially, occurring in each year ending in an even number.
Annually.
(2) Change in frequency. (i) The Board
may conduct a stress test of a covered
company on a more or less frequent
basis than would be required under
paragraph (d)(1) of this section based on
the company’s financial condition, size,
complexity, risk profile, scope of
operations, or activities, or risks to the
U.S. economy.
(ii) A Category IV bank holding
company or Category IV U.S.
intermediate holding company may
elect to have the Board conduct a stress
test with respect to the company in a
year ending in an odd number by
providing notice to the Board and the
appropriate Federal Reserve Bank by
January 15 of that year. Notwithstanding
the previous sentence, such a company
may elect to have the Board conduct a
stress test with respect to the company
in the year 2021 by providing notice to
the Board and the appropriate Federal
Reserve Bank by April 5, 2021.
(3) Notice and response—(i)
Notification of change in frequency. If
the Board determines to change the
frequency of the stress test under
paragraph (d)(2)(i) of this section, the
Board will notify the company in
writing and provide a discussion of the
basis for its determination.
(ii) Request for reconsideration and
Board response. Within 14 calendar
days of receipt of a notification under
paragraph (d)(3)(i) of this section, a
covered company may request in
writing that the Board reconsider the
requirement to conduct a stress test on
a more or less frequent basis than would
be required under paragraph (d)(1) of
this section. A covered company’s
request for reconsideration must include
an explanation as to why the request for
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reconsideration should be granted. The
Board will respond in writing within 14
calendar days of receipt of the
company’s request.
Subpart F—Company-Run Stress Test
Requirements for Certain U.S. Bank
Holding Companies and Nonbank
Financial Companies Supervised by
the Board
11. Amend § 252.54 revising
paragraph (b)(2)(i)(B) to read as follows:
■
§ 252.54
Stress test.
*
*
*
*
*
(b) * * *
(2) * * *
(i) * * *
(B) Is not a Category IV bank holding
company.
*
*
*
*
*
■ 12. Amend § 252.56 by revising
paragraph (a)(2) to read as follows:
§ 252.56
Methodologies and practices.
(a) * * *
(2) The potential impact on the
regulatory capital levels and ratios
applicable to the covered bank, and any
other capital ratios specified by the
Board, and in doing so must:
(i) Incorporate the effects of any
capital action over the planning horizon
and maintenance of an allowance for
loan losses or adjusted allowance for
credit losses, as appropriate, for credit
exposures throughout the planning
horizon; and
(ii) Exclude the impacts of changes to
a firm’s business plan that are likely to
have a material impact on the covered
company’s capital adequacy and
funding profile.
*
*
*
*
*
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13. Amend § 252.58 by revising
paragraph (a)(1) to read as follows:
■
§ 252.58
Disclosure of stress test results.
(a) * * *
(1) In general. A covered company
must publicly disclose a summary of the
results of the stress test required under
§ 252.54 within the period that is 15
calendar days after the Board publicly
discloses the results of its supervisory
stress test of the covered company
pursuant to § 252.46(b), unless that time
is extended by the Board in writing.
*
*
*
*
*
Appendix B to Part 252—[Amended]
14. Amend appendix B to part 252 by
removing and reserving section 2.6.
■
By order of the Board of Governors of the
Federal Reserve System.
Ann Misback,
Secretary of the Board.
[FR Doc. 2021–02182 Filed 2–2–21; 8:45 am]
BILLING CODE P
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 791
[Docket No. NCUA–2020–0098]
RIN 3133–AF28
Role of Supervisory Guidance
National Credit Union
Administration (NCUA).
ACTION: Final rule.
AGENCY:
The NCUA Board is adopting
a final rule that codifies the Interagency
Statement Clarifying the Role of
SUMMARY:
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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations
Supervisory Guidance, issued by the
NCUA, Federal Deposit Insurance
Corporation (FDIC), the Board of
Governors of the Federal Reserve (the
Board), the Office of Comptroller of the
Currency (OCC), and the Consumer
Financial Protection Bureau (Bureau)
(collectively, the agencies) on
September 11, 2018 (2018 Statement).
By codifying the 2018 Statement, with
amendments, the final rule confirms
that the NCUA will continue to follow
and respect the limits of administrative
law in carrying out their supervisory
responsibilities. The 2018 Statement
reiterated well-established law by
stating that, unlike a law or regulation,
supervisory guidance does not have the
force and effect of law. As such,
supervisory guidance does not create
binding legal obligations for the public.
Because it is incorporated into the final
rule, the 2018 Statement, as amended, is
binding on the NCUA. The final rule
adopts the rule as proposed without
change.
DATES: The provisions of this final rule
are effective on March 5, 2021.
FOR FURTHER INFORMATION CONTACT:
Naghi Khaled, Policy Officer (703) 664–
3883 or Scott Neat, Associate Director,
Office of Examinations and Insurance at
(703) 518–6363; Ian Marenna, Associate
General Counsel, or Marvin Shaw, Staff
Attorney, Office of General Counsel, at
the above address or telephone (703)
518–6540. National Credit Union
Administration, 1775 Duke Street,
Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION:
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I. Background
The NCUA recognizes the important
distinction between issuances that serve
to implement acts of Congress (known
as ‘‘regulations’’ or ‘‘legislative rules’’)
and non-binding supervisory guidance
documents.1 Regulations create binding
legal obligations. Supervisory guidance
is issued by an agency to ‘‘advise the
public prospectively of the manner in
which the agency proposes to exercise
a discretionary power’’ and does not
create binding legal obligations.2
In recognition of the important
distinction between rules and guidance,
on September 11, 2018, the NCUA along
1 Regulations are commonly referred to as
legislative rules because regulations have the ‘‘force
and effect of law.’’ Perez v. Mortgage Bankers
Association, 575 U.S. 92, 96 (2015) (citations
omitted).
2 See Chrysler v. Brown, 441 U.S. 281, 302 (1979)
(quoting the Attorney General’s Manual on the
Administrative Procedure Act at 30 n.3 (1947)
(Attorney General’s Manual) and discussing the
distinctions between regulations and general
statements of policy, of which supervisory guidance
is one form).
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with the Federal Deposit Insurance
Corporation (FDIC), the Board of
Governors of the Federal Reserve (the
Board), the Office of Comptroller of the
Currency (OCC), and the Consumer
Financial Protection Bureau (Bureau)
(collectively, the agencies) issued the
Interagency Statement Clarifying the
Role of Supervisory Guidance (2018
Statement) to explain the role of
supervisory guidance and describe the
agencies’ approach to supervisory
guidance.3 As noted in the 2018
Statement, the agencies issue various
types of supervisory guidance to their
respective supervised institutions,
including, but not limited to,
interagency statements, advisories,
bulletins, policy statements, questions
and answers, and frequently asked
questions. Supervisory guidance
outlines the agencies’ supervisory
expectations or priorities and articulates
the agencies’ general views regarding
practices for a given subject area.
Supervisory guidance often provides
examples of practices that mitigate risks,
or that the agencies generally consider
to be consistent with safety-andsoundness standards or other applicable
laws and regulations, including those
designed to protect consumers.4 The
agencies noted in the 2018 Statement
that supervised institutions at times
request supervisory guidance and that
guidance is important to provide clarity
to these institutions, as well as
supervisory staff, in a transparent way
that helps to ensure consistency in the
supervisory approach.5
3 See https://www.occ.gov/news-issuances/newsreleases/2018/nr-ia-2018-97a.pdf.
4 While supervisory guidance offers guidance to
the public on the agencies’ approach to supervision
under statutes and regulations and safe and sound
practices, the issuance of guidance is discretionary
and is not a prerequisite to an agency’s exercise of
its statutory and regulatory authorities. This point
reflects the fact that statutes and legislative rules,
not statements of policy, set legal requirements.
5 The Administrative Conference of the United
States (ACUS) has recognized the important role of
guidance documents and has stated that guidance
can ‘‘make agency decision-making more
predictable and uniform and shield regulated
parties from unequal treatment, unnecessary costs,
and unnecessary risk, while promoting compliance
with the law.’’ ACUS, Recommendation 2017–5,
Agency Guidance Through Policy Statements at 2
(adopted December 14, 2017), available at https://
www.acus.gov/recommendation/agency-guidancethrough-policy-statements. ACUS also suggests that
‘‘policy statements are generally better [than
legislative rules] for dealing with conditions of
uncertainty and often for making agency policy
accessible.’’ Id. ACUS’s reference to ‘‘policy
statements’’ refers to the statutory text of the APA,
which provides that notice and comment is not
required for ‘‘general statements of policy.’’ The
phrase ‘‘general statements of policy’’ has
commonly been viewed by courts, agencies, and
administrative law commentators as including a
wide range of agency issuances, including
guidance.
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The 2018 Statement restated existing
law and reaffirmed the agencies’
understanding that supervisory
guidance does not create binding,
enforceable legal obligations. The 2018
Statement reaffirmed that the agencies
do not issue supervisory criticisms for
‘‘violations’’ of supervisory guidance
and described 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
documents 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 agency
contact.
On November 5, 2018, the OCC,
Board, FDIC, and Bureau each received
a petition for a rulemaking (Petition), as
permitted under the Administrative
Procedure Act (APA),6 requesting that
the agencies codify the 2018 Statement.7
The Petitioners did not submit a
petition to the NCUA, which has no
supervisory authority over the financial
institutions that are represented by
Petitioners. The NCUA determined that
it was appropriate to join this
rulemaking on its own initiative.
References in the preamble to
‘‘agencies’’ therefore include the NCUA.
The Petition argued that a rule on
guidance is necessary to bind future
agency leadership and staff to the 2018
Statement’s terms. The Petition also
suggested there are ambiguities in the
2018 Statement concerning how
supervisory guidance is used in
connection with matters requiring
attention, matters requiring immediate
attention (collectively, MRAs for banks),
as well as in connection with other
supervisory actions that should be
clarified through a rulemaking. As
explained in the next section, the NCUA
examiners use a notification similar to
an MRA called a Document of
Resolution (DOR). Finally, the Petition
called for the rulemaking to implement
changes in the agencies’ standards for
issuing MRAs. Specifically, the Petition
requested that the agencies limit the role
of MRAs to addressing circumstances in
which there is a violation of a statute,
65
U.S.C. 553(e).
Petition for Rulemaking on the Role of
Supervisory Guidance, available at https://bpi.com/
wp-content/uploads/2018/11/BPI_PFR_on_Role_of_
Supervisory_Guidance_Federal_Reserve.pdf.
7 See
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regulation, or order, or demonstrably
unsafe or unsound practices.
B. NCUA’s Examination and
Supervisory Oversight
As a member of the Federal Financial
Institution Examination Council
(FFIEC),8 the NCUA participates with
and generally has regulations and
guidance consistent with the other
financial regulators. Nevertheless, given
its different statutory framework, the
NCUA’s supervision of Federal credit
unions and federally insured, statechartered credit unions is different than
the other agencies. With respect to
safety and soundness, the Federal Credit
Union Act requires the NCUA to ensure
all federally insured credit unions
operate safely and soundly.9 In
particular, 12 U.S.C. 1786(b) compels
the agency to act to correct unsafe or
unsound conditions or practices in
insured credit unions.10
Often, and necessarily, regulatory
requirements are not simple
prescriptions that lend themselves to
right-or-wrong determinations.
Codifying in regulation all unsafe and
unsound conditions and practices in
explicit detail would be unfeasible,
especially in light of the ever-evolving
nature of financial services. Highly
detailed or prescriptive regulations
would also lead to unintended
consequences. Regulated entities would
face additional burden, less flexibility,
and innovation would be stifled.
Notwithstanding these limitations, the
NCUA has issued a regulation that
implements the Federal Credit Union
Act’s requirement that federally insured
credit unions operate safely and
soundly. Section 741.3(b) of the NCUA’s
Rules and Regulation lists various
factors the agency considers ‘‘in
determining whether the credit union’s
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8 https://www.ffiec.gov/.
9 There are 21 references to ‘‘safety and
soundness’’ in the Federal Credit Union Act. See 12
U.S.C. 1757(5)(A)(vi)(I), 1759(d & f), 1781(c)(2),
1782(a)(6)(B), 1786(b), 1786(e), 1786(f), 1786(g),
1786(k)(2), 1786(r), 1786(s), and 1790d(h).
Similarly, the NCUA requires federally insured
credit unions to comply with relevant consumer
protection statutes and regulations.
10 ‘‘Whenever, in the opinion of the Board, any
insured credit union is engaging or has engaged in
unsafe or unsound practices in conducting the
business of such credit union, or is in an unsafe or
unsound condition to continue operations as an
insured credit union, or is violating or has violated
an applicable law, rule, regulation, order, or any
condition imposed in writing by the Board in
connection with any action on any application,
notice, or other request by the credit union or
institution-affiliated party, or is violating or has
violated any written agreement entered into with
the Board, the Board shall serve upon the credit
union a statement with respect to such practices or
conditions or violations for the purpose of securing
the correction thereof.’’
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financial condition and policies are both
safe and sound.’’ Regarding the
continuing insurability of a credit
union, Section 741.3(d) of the NCUA’s
Rules and Regulation goes on to specify
that ‘‘[i]nsurance of member accounts
would not otherwise involve undue risk
to the National Credit Union Share
Insurance Fund (NCUSIF).’’ 11
The NCUA needs to be able to address
safety and soundness issues through
supervisory determinations that
properly evaluate and weigh the
relevant facts and considerations in
their totality. For example, a federally
insured credit union may be engaged in
an inherently high-risk activity, but the
credit union may mitigate the risk by
holding extra capital and liquidity and
adopting leading practices in managing
the underlying risk. Conversely, another
institution may have not adopted
sufficient mitigations to offset the risk,
leading to undue risk to the National
Credit Union Share Insurance Fund and
taxpayers.
Like the other agencies, the NCUA has
instructions that set requirements for
how examiners supervise institutions.12
For example, when addressing a
concern in a report of examination,
examiners are required to cite the
highest authority related to the subject
matter, and describe the root problem
including the corresponding details and
facts that support the examiner’s
conclusion. Examiners can cite agency
guidance when addressing some
violations or unsafe or unsound
conditions or practices when they
involve a significant degree of judgment
or interpretation in their application.
This is necessary and helpful for both
regulated institutions and examiners by
standardizing application of regulatory
requirements that require judgment or
interpretation in their application,
instead of relying on the individual
views of each examiner. The examiner
guidance explains how the subject
relates to a regulatory or statutory
requirement and provides the
institution with additional information
on the topic.
Pursuant to agency policy, examiners
may only include in the Document of
11 This provision states: ‘‘Any circumstances
which may be unique to the particular credit union
concerned shall also be considered in arriving at the
determination of whether or not an undue risk to
the NCUSIF is or may be present. For purposes of
this section, the term ‘undue risk to the NCUSIF’
is defined as a condition which creates a probability
of loss in excess of that normally found in a credit
union and which indicates a reasonably foreseeable
probability of the credit union becoming insolvent
because of such condition, with a resultant claim
against the NCUSIF.’’
12 https://www.ncua.gov/regulation-supervision/
manuals-guides/examiners-guide.
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Resolution (DOR) 13 issues that are
significant enough that they would be
escalated to the next level of
enforcement for failure to correct the
problem. These types of problems are
defined as:
• Unsafe or unsound practices that
reasonably threaten the stability of the
credit union—that is, any action or lack
of action that, if left uncorrected, may
result in substantial loss or damage to
the credit union or its members.
• Violations of law or regulation that
are systemic, recurring, or that result
from willful neglect.
With that statutory and regulatory
background in mind, the NCUA uses
DORs to address practices that result in
substantive noncompliance with laws or
rules, enforcement actions, or
conditions imposed in writing. The
NCUA’s policy is to identify deficient
practices and violations in a timely
manner and encourage corrective action
well before deficiencies affect a credit
union’s financial condition or viability.
II. The Proposed Rule and Comments
Received
On November 5, 2020, the agencies
issued a proposed rule (Proposed Rule)
that would codify the 2018 Statement,
with clarifying changes, as an appendix
to proposed rule text.14 The Proposed
Rule would supersede the 2018
Statement. The rule text would also
provide that the amended version of the
2018 Statement is binding on each
respective agency.
Clarification of the 2018 Statement
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 MRAs are
covered by the 2018 Statement.
Accordingly, the agencies proposed to
clarify in the Proposed Rule that the
term ‘‘criticize’’ includes the issuance of
MRAs and other supervisory criticisms
such as DORs, including those
communicated through matters
requiring board attention, documents of
resolution, and supervisory
recommendations (collectively,
13 The Document of Resolution section of the
NCUA’s report of examination is the equivalent of
Matters Requiring Immediate Attention used by the
other banking agencies.
14 85 FR 70512 (November 5, 2020).
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supervisory criticisms).15 As such, the
agencies reiterated that examiners will
not base supervisory criticisms on a
‘‘violation’’ of or ‘‘non-compliance
with’’ supervisory guidance. The
agencies noted 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 reiterated
that they will not issue an enforcement
action on the basis of a ‘‘violation’’ of
or ‘‘non-compliance’’ with supervisory
guidance. The Proposed Rule reflected
these clarifications.16
The Petition requested further that
these supervisory criticisms should not
include ‘‘generic’’ or ‘‘conclusory’’
references to safety and soundness. The
agencies agreed that supervisory
criticisms should continue to be specific
as to practices, operations, financial
conditions, or other matters that could
have a negative effect on the safety and
soundness of the financial institution,
could cause consumer harm, or could
cause violations of laws, regulations,
final agency orders, or other legally
enforceable conditions. Accordingly, the
agencies included language reflecting
this practice in the Proposed Rule.
The Petition also suggested that
MRAs, as well as memoranda of
understanding (MOUs), examination
downgrades, and any other formal
examination mandate or sanction,
should be based only on a violation of
a statute, regulation, or order, including
a ‘‘demonstrably unsafe or unsound
15 The agencies use different terms to refer to
supervisory actions that are similar to MRAs and
Matters Requiring Immediate Attention (MRIAs),
including matters requiring board attention,
documents of resolution, and supervisory
recommendations.
16 The 2018 Statement contains the following
sentence:
Examiners will not criticize a supervised
financial institution for a ‘‘violation’’ of supervisory
guidance.
2018 Statement at 2. As revised in the Proposed
Rule, this sentence read as follows:
Examiners will not criticize (including through
the issuance of matters requiring attention, matters
requiring immediate attention, matters requiring
board attention, documents of resolution, and
supervisory recommendations) a supervised
financial institution for, and agencies will not issue
an enforcement action on the basis of, a ‘‘violation’’
of or ‘‘non-compliance’’ with supervisory guidance.
Proposed Rule (emphasis added). As discussed
infra in footnote 12, the Proposed Rule also
removed the sentences in the 2018 Statement that
referred to ‘‘citation,’’ which the Petition suggested
had been confusing. These sentences were also
removed to clarify that the focus of the Proposed
Rule related to the use of guidance, not the
standards for MRAs.
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practice.’’ 17 As noted in the Proposed
Rule, examiners all take steps to identify
deficient practices before they rise to
violations of law or regulation or before
they constitute unsafe or unsound
banking practices. The agencies stated
that they continue to believe that early
identification of deficient practices
serves the interest of the public and of
supervised institutions. Early
identification protects the safety and
soundness of banks and credit unions
promotes consumer protection and
reduces the costs and risk of
deterioration of financial condition from
deficient practices resulting in
violations of laws or regulations, unsafe
or unsound conditions, or unsafe or
unsound practices. The Proposed Rule
also noted that the agencies have
different supervisory processes,
including for issuing supervisory
criticisms. For these reasons, the
agencies did not propose revisions to
their respective supervisory practices
relating to supervisory criticisms.
The agencies also noted that the 2018
Statement was intended to focus on the
appropriate use of supervisory guidance
in the supervisory process, rather than
the standards for supervisory criticisms.
To address any confusion concerning
the scope of the 2018 Statement, the
Proposed Rule removed two sentences
from the 2018 Statement concerning
grounds for ‘‘citations’’ and the
handling of deficiencies that do not
constitute violations of law.18
17 The Petition asserted that the federal banking
agencies rely on 12 U.S.C. 1818(b)(1) when issuing
MRAs based on safety-and-soundness matters.
Through statutory examination and reporting
authorities, Congress has conferred upon the
agencies the authority to exercise visitorial powers
with respect to supervised institutions. The
Supreme Court has indicated support for a broad
reading of the agencies’ visitorial powers. See, e.g.,
Cuomo v. Clearing House Assn L.L.C., 557 U.S. 519
(2009); United States v. Gaubert, 499 U.S. 315
(1991); and United States v. Philadelphia Nat.
Bank, 374 U.S. 321 (1963). The visitorial powers
facilitate early identification of supervisory
concerns that may not rise to a violation of law,
unsafe or unsound banking practice, or breach of
fiduciary duty under 12 U.S.C. 1818. For credit
unions, the corresponding provision is 12 U.S.C.
1786.
18 The following sentences from the 2018
Statement were not present in the Proposed Rule:
Rather, any citations will be for violations of law,
regulation, or non-compliance with enforcement
orders or other enforceable conditions. During
examinations and other supervisory activities,
examiners may identify unsafe or unsound
practices or other deficiencies in risk management,
including compliance risk management, or other
areas that do not constitute violations of law or
regulation.
2018 Statement at 2. The agencies did not intend
these deletions to indicate a change in supervisory
policy.
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Comments on the Proposed Rule
A. NCUA Specific Comments
The NCUA received 13 comments
specifically focusing on credit union
concerns about the Proposed Rule.
These commenters, which included
national trade associations, state credit
union leagues, and credit unions,
generally supported he proposed rule.
Six comments were sent jointly to each
regulator, two were from associations
that provided similar comments to the
CFPB, and five were comments
provided solely to the NCUA. Topics
discussed within the scope of the
proposal are issues addressing the effect
and applicability of the guidance. Issues
beyond the scope of the rule addressed
coordination with other Federal and
State regulatory authorities, consistency
in applying guidance, the examination
cycle, the need for an appeals process,
and the need for the Board to issue more
guidance on various topics.
One commenter stated that each
guidance statement from the NCUA
should include a notice that it is
nonbinding. In addition, the commenter
believed that the NCUA should add a
notice to each guidance statement to
support that credit unions are fully
permitted to develop their own
approaches to compliance issues, and
that the examiner’s recommendations or
suggestions do not eliminate the ability
of the credit union to implement its
specific solutions.
Aside from expressing general
support for the rule, most credit union
specific comments were beyond the
scope of the rulemaking. Three
commenters requested that the NCUA
improve coordination with respect to
other Federal regulators, especially
CFPB and FINCEN. Two commenters
also requested that NCUA improve
coordination with state supervisory
authorities. The commenters stated that
such enhanced coordination would help
avoid overlapping or consecutive
examinations, which they stated
imposes operational burdens and
utilizes critical staff member time. With
respect to state guidance, two
commenters stated that the NCUA must
ensure state regulators understand how
the NCUA will incorporate state
reliance on state guidance into joint
examinations or in alternating
examinations where the NCUA may be
the lead agency.
Two commenters stated that there
should be more consistent application
of the rules and guidance across regions,
with examples provided about BSA/
AML and audit reports. One commenter
recommended that the NCUA should
create a task force to evaluate
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inconsistent application of guidance
comprised of credit union officials and
staff.
One commenter stated that the NCUA
Interpretive Rules and Policy
Statements (IRPS) are part exempted
interpretive rules and covered policy
statements. NCUA might consider
explicitly identifying existing and future
issuances as either covered supervisory
guidance or exempt interpretive rule to
provide clarity for stakeholders.
B. Comments to All the Agencies
Including the NCUA
In addition, the agencies received 30
comments concerning the Proposed
Rule.19 Commenters representing trade
associations for banking institutions and
other businesses, state bankers’
associations, individual financial
institutions, and one member of
Congress expressed support for the
proposed rule. These commenters
supported codification of the 2018
Interagency Statement and the
reiteration by the agencies that guidance
does not have the force of law and
cannot give rise to binding, enforceable
legal obligations. One of these
commenters stated that the proposal
would serve the interests of consumers
and competition by allowing
institutions to know what the law is and
to develop innovative products that
serve consumers and business clients,
without uncertainty regarding potential
regulatory consequences. These
commenters expressed strong support as
well for the clarification in the Proposed
Rule that the Agencies will not criticize,
including through the issuance of
‘‘matters requiring attention,’’ a
supervised financial institution for a
‘‘violation’’ of, or ‘‘non-compliance’’
with, supervisory guidance.
One commenter agreed with the
agencies that supervisory criticisms
should not be limited to violation of
statutes, regulations, or order, including
a ‘‘demonstrable unsafe or unsound
practice’’ and that supervisory guidance
remains a beneficial tool to
communicate supervisory expectations
to the industry. The commenter stated
that the proactive identification of
supervisory criticism or deficiencies
that do not constitute violations of law
facilitates forward-looking supervision,
which helps address problems before
they warrant a formal enforcement
action. The commenter noted as well
that supervisory guidance provides
19 Of the comments received, some comments
were not submitted to all agencies, some comments
were identical, and many comments were directed
at an unrelated rulemaking by the Financial Crimes
Enforcement Network of the Department of the
Treasury (FinCEN).
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important insight to industry and
ensures consistency in the supervisory
approach and that supervised
institutions frequently request
supervisory guidance. The commenter
observed that the pandemic has
amplified the requests for supervisory
guidance and interpretation, and that it
is apparent institutions want clarity and
guidance from regulators.
Two commenters, both advocacy
groups, opposed the proposed rule,
suggesting that codifying the 2018
Statement may undermine the
important role that supervisory
guidance can play by informing
supervisory criticism, rather than
merely clarifying that it will not serve
as the basis for enforcement actions.
One commenter stated that it is essential
for agencies to have the prophylactic
authority to base criticisms on improper
practices by financial institutions that
may not yet have ripened into violations
of law or significant safety and
soundness concerns. The commenter
stated that this is particularly important
with respect to large banks, where delay
in addressing concerns could lead to a
broader crisis. One commenter stated
that the agencies have not explained the
benefits that would result from the rule
or demonstrated how the rule will
promote safety and soundness or
consumer protection. The commenter
argued that supervision is different from
other forms of regulation and requires
supervisory discretion, which could be
constrained by the rule. One of these
commenters argued that the proposal
would send a signal that financial
institutions have wider discretion to
ignore supervisory guidance.
B. Scope of Rule
Several commenters requested that
the Proposed Rule cover interpretive
rules and clarify that interpretive rules
do not have the force and effect of law.
One commenter stated that the agencies
should clarify whether they believe that
interpretive rules can be binding. The
commenter argued that, under
established legal principles, interpretive
rules can be binding on the issuing
agency but not on the public. Some
commenters suggested that the agencies
follow ACUS recommendations for
issuing interpretive rules and that the
agencies should clarify when particular
guidance documents are or are not
interpretive rules and allow the public
to petition and change an interpretation.
A number of commenters requested that
the agencies expand the statement to
address the standards that apply to
MRAs and other supervisory criticisms
such as DORs, a suggestion made in the
Petition.
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C. Role of Guidance Documents
Several commenters recommended
that the agencies clarify that the
practices described in supervisory
guidance are merely examples of
compliant conduct, not expectations
that may form the basis for supervisory
criticism. One commenter suggested
that the agencies state that when
agencies offer examples of safe and
sound conduct, compliance with
consumer protection standards,
appropriate risk management practices,
or acceptable practices through
supervisory guidance or interpretive
rules, the Agencies will treat adherence
to that supervisory guidance or
interpretive rule as deemed compliance.
One commenter also requested that the
agencies make clear that guidance that
goes through public comment, as well as
any examples used in guidance, are not
binding. The commenter also requested
that the agencies affirm that they will
apply statutory factors while processing
applications.
One commenter argued that guidance
provides valuable information to
supervisors about how their discretion
should be exercised and therefore plays
an important role in supervision.
According to this commenter, 12 U.S.C.
1831p–1 and 12 U.S.C. 1818 recognize
the discretionary power conferred on
banking agencies separate from the
power to issue regulations. The
commenter noted that, pursuant to these
statutes, regulators may issue cease and
desist orders based on a reasonable
cause to believe that an institution has
engaged, is engaging or is about to
engage in an unsafe and unsound
practice, separately and apart from
whether the institution has technically
violated a law or regulation. The
commenter added that Congress
entrusted the agencies with the power to
determine whether practices are unsafe
and unsound and attempt to halt such
practices through supervision, even if a
specific case may not constitute a
violation of a written law or regulation.
D. Supervisory Criticisms
Several commenters addressed
supervisory criticisms and how they
relate to guidance. Commenters
suggested that supervisory criticisms
should be specific as to practices,
operations, financial conditions, or
other matters that could have a negative
effect. Commenters suggested that
MRAs, memoranda of understanding
and any other formal written mandates
or sanctions should be based only on a
violation of a statute or regulation.
Similarly, commenters argued that there
should be no references to guidance in
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written formal actions and that banking
institutions should be reassured that
they will not be criticized or cited for
a violation of guidance when no law or
regulation is cited. One commenter
suggested that it would instead be
appropriate to discuss supervisory
guidance privately, rather than publicly,
potentially during the pre-exam
meetings or during examination exit
meetings. Another commenter suggested
that, while referencing guidance in
supervisory criticism may be useful at
times, agencies should provide
safeguards to prevent such references
from becoming the de facto basis for
supervisory criticisms. One commenter
suggested that examiners also should
not criticize community banks in their
final written examination reports for not
complying with ‘‘best practices’’ unless
the criticism involves a violation of
bank policy or regulation. The
commenter added that industry best
practices should be transparent enough
and sufficiently known throughout the
industry before they are cited in an
examination report. One commenter
requested that examiners should not
apply large bank practices to
community banks that have a different,
less complex and more conservative
business model. One commenter
asserted that MRAs should not be based
on ‘‘reputational risk,’’ but rather the
underlying conduct giving rise to
concerns should be the basis for an
MRA and asked the agencies to address
this in the final rule.
Commenters that opposed the
proposal did not support restricting
supervisory criticism or sanctions to
explicit violations of law or regulation.
One commenter expressed concern that
requiring supervisors to wait for an
explicit violation of law before issuing
criticism would effectively erase the
line between supervision and
enforcement. One commenter
emphasized the importance of bank
supervisors basing their criticisms on
imprudent bank practices that may not
yet have ripened into violations of laws
or rules but which if left unaddressed
could undermine safety and soundness
or pose harm to consumers.
One commenter argued that the
agencies should state clearly that
guidance can and will be used by
supervisors to inform their assessments
of banks’ practices; that it may be cited
as, and serve as the basis for, criticisms.
According to the commenter, even
under the ‘‘well-established law’’
described in the proposal, it is quite
permissible for guidance to be used as
a set of standards that may indeed
inform a criticism, provided that
application of the guidance is used for
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corrective purposes, if not to support an
enforcement action.
According to one commenter, the
proposal makes fine conceptual
distinctions between, for example,
issuing supervisory criticisms ‘‘on the
basis of’’ guidance (which is apparently
forbidden) and issuing supervisory
criticisms that make ‘‘reference’’ to
supervisory guidance (which continues
to be permitted). The commenter
suggested that is a distinction that it
may be difficult for people to parse in
practice. According to the commenter, a
rule that makes such a distinction is
likely to have a chilling effect on
supervisors attempting to implement
policy in the field. According to another
commenter, the language allowing
examiners to reference supervisory
guidance to provide examples is too
vague and threatens to marginalize the
role of guidance to the point that it
becomes almost useless in the process of
issuing criticisms designed to correct
deficient bank practices.
E. Legal Authority and Visitorial Powers
One commenter questioned the
agencies’ reference in the proposal to
visitorial powers as an additional
authority for early identification of
supervisory concerns that may not rise
to a violation of law, unsafe or unsound
banking practice, or breach of fiduciary.
F. Issuance and Management of
Supervisory Guidance
Several commenters made suggestions
about how the agencies should issue
and manage supervisory guidance.
Some comments suggested that the
agencies should clearly delineate
between regulations and supervisory
guidance. Commenters encouraged the
agencies to regularly review, update,
and potentially rescind outstanding
guidance. One commenter suggested
that the agencies rescind outstanding
guidance that functions as a rule but has
not gone through notice and comment.
One commenter suggested that the
agencies memorialize their intent to
revisit and potentially rescind existing
guidance, as well as limit multiple
guidance documents on the same topic.
Commenters suggested that supervisory
guidance should be easy to find, readily
available, online, and in a format that is
user-friendly and searchable.
One commenter encouraged the
agencies to issue principles-based
guidance that does not contain the kind
of granularity that could be
misconstrued as binding expectations.
According to this commenter, the
agencies can issue separate FAQs with
more detailed information but should
clearly identify these as non-binding
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illustrations. This commenter also
encouraged the agencies to publish
proposed guidance for comment when
circumstances allow. One commenter
expressed concern that the agencies will
aim to reduce the issuances of multiple
supervisory guidance documents and
will thereby reduce the availability of
guidance in circumstances where
guidance would be valuable.
Responses to Comments
As stated in the Proposed Rule, the
2018 Statement was intended to focus
on the appropriate use of supervisory
guidance in the supervisory process,
rather than the standards for
supervisory criticisms. The standards
for issuing MRAs and other supervisory
actions such as DORs were, therefore,
outside the scope of this rulemaking.
For this reason, and for reasons
discussed earlier, the final rule does not
address the standards for MRAs and
other supervisory actions such as DORs.
Similarly, because the NCUA is not
addressing approaches to supervisory
criticism in the final rule, including any
criticism related to reputation risk, the
final rule does not include standards for
supervisory criticisms relating to
‘‘reputation risk.’’
With respect to the comments on
coverage of interpretive rules, the NCUA
agrees with the commenter that
interpretive rules do not, alone, ‘‘have
the force and effect of law’’ and must be
rooted in, and derived from, a statute or
regulation.20 While interpretive rules
and supervisory guidance are similar in
lacking the force and effect of law,
interpretive rules and supervisory
guidance are distinct under the APA
and its jurisprudence and are generally
issued for different purposes.21
Interpretive rules are typically issued by
20 See
Mortgage Bankers Association, 575 U.S. at
96.
21 Questions concerning the legal and supervisory
nature of interpretive rules are case-specific and
have engendered debate among courts and
administrative law commentators. The NCUA takes
no position in this rulemaking on those specific
debates. See, e.g., R. Levin, Rulemaking and the
Guidance Exemption, 70 Admin. L. Rev. 263 (2018)
(discussing the doctrinal differences concerning the
status of interpretive rules under the APA); see also
Nicholas R. Parillo, Federal Agency Guidance and
the Powder to Bind: An Empirical Study of Agencies
and Industries, 36 Yale J. Reg 165, 168 n.6 (2019)
(‘‘Whether interpretive rules are supposed to be
nonbinding is a question subject to much confusion
that is not fully settled’’); see also ACUS,
Recommendation 2019–1, Agency Guidance
Through Interpretive Rules (Adopted June 13,
2019), available at https://www.acus.gov/
recommendation/agency-guidance-throughinterpretive-rules (noting that courts and
commentators have different views on whether
interpretive rules bind an agency and effectively
bind the public through the deference given to
agencies’ interpretations of their own rules under
Auer v. Robbins, 519 U.S. 452 (1997)).
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an agency to advise the public of the
agency’s construction of the statutes and
rules that it administers,22 whereas
general statements of policy, such as
supervisory guidance, advise the public
of how an agency intends to exercise its
discretionary powers.23 To this end,
guidance generally reflects an agency’s
policy views, for example, on practices
on safe and sound risk management. On
the other hand, interpretive rules
generally resolve ambiguities regarding
what statutes and regulations require.
Because supervisory guidance and
interpretive rules have different
characteristics and serve different
purposes, the NCUA is adopting the
proposed rule’s coverage of supervisory
guidance only.
With respect to the question of
whether to adopt ACUS’s procedures for
allowing the public to request
reconsideration or revision of an
interpretive rule, this rulemaking, again,
does not address interpretive rules. As
such, the NCUA is not adding
procedures for challenges to interpretive
rules through this rulemaking.
In response to the comment that the
agencies treat examples in guidance as
‘‘safe harbors,’’ the NCUA agrees that
examples offered in guidance may
provide reassurance about practices
that, in general, may lead to safe and
sound operation and compliance with
regulations and statutes. The examples
in guidance, however, are typically
generalized. The question of whether
the employment of the examples meets
supervisory goals requires consideration
of how an institution applies those
examples under the facts and
circumstances. In addition, the
underlying legal principle of guidance is
that it does not created binding legal
obligation for either the public or an
agency. As such, the NCUA does not
intend to deem examples in guidance as
categorically setting safe harbors.24
In response to the comment that the
proposal may undermine the important
role that supervisory guidance can play
by informing supervisory criticism and
by serving to address conditions before
those conditions lead to enforcement
22 Mortgage Bankers Association, 575 U.S. at 97
(citing Shalala v. Guernsey Memorial Hospital, 514
U.S. 87, 99 (1995)); accord Attorney General’s
Manual at 30 n.3.
23 See Chrysler v. Brown, 441 U.S. at 302 n.31
(quoting Attorney General’s Manual at 30 n.3); see
also, e.g., American Mining Congress v. Mine Safety
& Health Administration, 995 F.2d 1106, 1112 (D.C.
Cir. 1993) (outlining tests in the D.C. Circuit for
assessing whether an agency issuance is an
interpretive rule).
24 The question of whether an example in
guidance can provide a safe harbor would also
likely not be a logical outgrowth of the proposed
rule.
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actions, the NCUA agrees that the
appropriate use of guidance supports a
more collaborative and constructive
regulatory process that supports the
safety and soundness of institutions and
diminishes the need for enforcement
actions. In addition, as noted by ACUS,
guidance can make agency decisionmaking more predictable and uniform
and shield regulated parties from
unequal treatment, unnecessary costs,
and unnecessary risk, while promoting
compliance with the law. The NCUA
intends, therefore, to continue using
guidance to bolster the supervisory
process. The NCUA does not view the
final rule as weakening the role of
guidance in the supervisory process.
Further, the NCUA will continue to use
guidance in a robust way to support the
safety and soundness of credit unions.
In response to the related question from
these commenters, which suggested
there is no basis for the rule, the NCUA
notes the question of the role of
guidance has been one of interest to
regulated parties and other stakeholders
over the past few years. The Petition is
evidence of this interest. As such, the
NCUA believes it will serve the public
interest to reaffirm the appropriate role
of supervisory guidance.
With respect to the comment that
visitorial powers do not provide the
authority to issue supervisory criticisms
like DORs, the NCUA disagrees. The
visitorial powers of financial regulators
are well-established. The Supreme
Court’s decision in Cuomo v. Clearing
House Assn L.L.C. explained that the
visitation included the ‘‘exercise of
supervisory power.’’ 25 The Court ruled
that the ‘‘power to enforce the law exists
separate and apart from the power of
visitation.’’ 26 While the Cuomo
decision involved the question of which
powers may be exercised by state
governments (and ruled that states
could exercise law enforcement powers
but could not exercise visitorial
powers), the decision did not dispute
that the Federal agencies possess both
these powers. The Court in Cuomo
explained that visitorial powers entailed
‘‘oversight and supervision,’’ while the
Court’s earlier decision in Watters v.
Wachovia Bank, N.A. explained that
visitorial powers entailed ‘‘general
supervision and control.’’ 27
Accordingly, visitorial powers include
the power to issue supervisory
criticisms independent of the agencies’
authority to enforce applicable laws or
ensure safety and soundness. For these
reasons, the NCUA reaffirms the
25 557
U.S. 519, 536 (2009).
at 533.
27 550 U.S. 1, 127 (2007).
26 Id.
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7955
statement in the preamble to the
Proposed Rule that such visitorial
powers have been conferred through
statutory examination and reporting
authorities, which facilitate the NCUA’s
identification of supervisory concerns
that may not rise to a violation of law,
unsafe or unsound practice, or breach of
fiduciary duty under 12 U.S.C. 1786. In
the case of the federal banking agencies,
such statutory examination and
reporting authorities pre-existed 12
U.S.C. 1786, which neither superseded
nor replaced such authorities. Each of
the agencies has been vested with
statutory examination and reporting
authorities with respect to institutions
under its supervision.28
In response to the commenter’s
request regarding guidance issued for
public comment, the NCUA notes that it
has made clear through the 2018
Statement and in this final rule that
supervisory guidance (including
guidance that goes through public
comment) does not create binding,
enforceable legal obligations. Rather, the
NCUA issues guidance for comment in
order to improve its understanding of an
issue, gather information, or seek ways
to achieve a supervisory objective most
effectively. Similarly, examples that are
included in supervisory guidance are
not binding on institutions. Rather,
these examples are intended to be
illustrative of ways a supervised
institution may implement safe and
sound practices, appropriate consumer
protection, prudent risk management, or
other actions to comply with laws or
regulations.
With respect to the commenter’s
request that the agencies affirm that they
will apply statutory factors while
processing applications, the NCUA
affirms that the agency will continue to
consider and apply all applicable
statutory factors when processing
applications.
In response to the question raised by
some commenters concerning potential
confusion between guidance and
interpretive rules, the NCUA notes that
interpretive rules are outside the scope
of the rulemaking. In addition, as stated
earlier, while both guidance and
interpretive rules serve different
purposes, both lack the force and effect
of law. Interpretive rules must be rooted
28 The commenter’s reading of the agencies’
examination and reporting authorities would assert
that the agencies may examine supervised
institutions and require reports, but not make
findings based on such examinations and reporting,
unless the finding is sufficient to warrant a formal
enforcement action under the standard set out in 12
U.S.C. 1818 for banks. This reading is inconsistent
with the history of federal financial supervision,
including as described in the cases cited in the
Proposed Rule.
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in the statutes and regulations those
rules interpret. As for identification of
these documents, the NCUA generally
does, identify guidance and interpretive
rules and will continue to do so going
forward.
In response to the two commenters
opposing the Proposal, this final rule
does not undermine any of the NCUA’s
safety and soundness authorities.
Indeed, the final rule is designed to
solidify the NCUA’s ability to enforce
the very matters of most importance. In
addition, the NCUA notes the question
of the role of guidance has been one of
interest to regulated parties and other
stakeholders over the past few years.
The Petition is evidence of this interest.
As such, the NCUA believes it will serve
the public interest to reaffirm the
appropriate role of supervisory
guidance. Therefore, the NCUA is
proceeding with the rule as proposed.
One credit union commenter stated
that examiners should only use
regulatory requirements as the basis to
assess credit union operations, and
afford credit unions the opportunity to
demonstrate that their practices, which
may deviate from the examples
provided in supervisory guidance,
nonetheless constitute safe and sound
practices that meet regulatory
requirements. The NCUA notes that the
final rule clearly indicates that
examiners will not criticize a supervised
financial institution for, and the NCUA
will not issue an enforcement action on
the basis of, a ‘‘violation’’ of or ‘‘noncompliance’’ with supervisory guidance.
Nevertheless, examiners may reference
supervisory guidance to provide
examples of safe and sound practices,
appropriate consumer protection and
risk management practices, and other
actions for addressing compliance with
laws or regulations.
Another commenter requested that all
supervisory guidance be published for
public comment before being issued.
The commenter argued that this process
would reinforce the nature of the
guidance and provide credit unions a
role in helping to achieve vetted
guidance that is useful to their
operations. The NCUA does not agree
with this comment as publishing each
supervisory guidance for public
comment would prevent it from being
issued timely to provide examples of
safe and sound practices, appropriate
consumer protection and risk
management practices, and other
actions for addressing compliance with
laws or regulations where applicable. As
stated in response to other comments,
the NCUA’s position is the underlying
legal principal of guidance is that it
does not create a binding legal
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obligation for either the public or an
agency.
One comment stated that the NCUA
should include a notice in each
supervisory guidance indicating that it
is nonbinding. The NCUA believes such
a notice is not necessary, given that the
final rule reflects the NCUA’s position
that the underlying legal principal of
supervisory guidance is that it does not
created binding legal obligation for
either the public or an agency.
One comment recommended
identifying existing and future issuances
of NCUA Interpretive Rules and Policy
Statements (IRPS) as either a covered
supervisory guidance or an exempt
interpretive rule to provide clarity for
credit unions. The NCUA reiterates that
interpretive rules are outside the scope
of this rulemaking. However, as stated
in the proposed rule, while both
guidance and interpretive rules serve
different purposes, both lack the force
and effect of law. As for identification
of NCUA IRPS issuances, the NCUA
generally does identify guidance and
interpretive rules and will continue to
do so going forward.
Comments Beyond the Scope of the
Rulemaking
Most comments by credit union
affiliated commenters were beyond the
scope of the rulemaking, including the
need for coordination with other
Federal and State regulatory authorities,
consistency in applying guidance, the
examination cycle, the need for an
appeals process, and the need for the
Board to issue more guidance on various
topics. Given that these comments
addressed issues not relevant to the
guidance rulemaking, the NCUA has
determined that it is more appropriate
to assess them outside the context of
this rulemaking. Nevertheless, the Board
agrees with the commenters that is
important to enhance coordination with
other regulatory authorities and apply
guidance consistently.
III. The Final Rule
For the reasons discussed above, the
final rule adopts the Proposed Rule
without change. However, the NCUA
has decided to issue a final rule that is
specifically addressed to the NCUA and
NCUA-supervised institutions, rather
than the joint version that the five
agencies included in their joint
Proposal. Although many of the
comments were applicable to all of the
agencies, some comments were specific
to particular agencies or to groups of
agencies. Having separate final rules has
enabled agencies to better focus on
explaining any agency-specific issues to
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their respective audiences of supervised
institutions and agency employees.
IV. Administrative Law Matters
A. Paperwork Reduction Act Analysis
The Paperwork Reduction Act of
1995 29 (PRA) states that no agency may
conduct or sponsor, nor is the
respondent required to respond to, an
information collection unless it displays
a currently valid Office of Management
and Budget (OMB) control number. The
NCUA has reviewed this final rule and
determined that it does not contain any
information collection requirements
subject to the PRA. Accordingly, no
submissions to OMB will be made with
respect to this final rule.
B. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA)
generally requires that, in connection
with a notice of proposed rulemaking,
an agency prepare and make available
for public comment an initial regulatory
flexibility analysis that describes the
impact of a proposed rule on small
entities. A regulatory flexibility analysis
is not required, however, if the agency
certifies that the rule will not have a
significant economic impact on a
substantial number of small entities
(defined by the NCUA for purposes of
the RFA to include federally insured
credit unions with assets less than $100
million) 30 and publishes its
certification and a short, explanatory
statement in the Federal Register
together with the rule. This rule will not
impose any obligations on federally
insured credit unions, and regulated
entities will not need to take any action
in response to this rule. The NCUA
certifies that the rule will not have a
significant economic impact on a
substantial number of small entities.
The NCUA received no comments in
response to its request for comments on
this analysis.
C. Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. In adherence to
fundamental federalism principles, the
NCUA, an independent regulatory
agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive
order. This rule will not have a
substantial direct effect on the states, on
the connection between the national
government and the states, or on the
29 44
U.S.C. 3501–3521.
Interpretive Ruling and Policy
Statement (IRPS) 87–2, as amended by IRPS 03–2
and 15–1, available at https://www.ncua.gov/files/
publications/irps/IRPS1987-2.pdf.
30 NCUA
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distribution of power and
responsibilities among the various
levels of government. The NCUA has
determined this rule does not constitute
a policy that has federalism
implications for purposes of the
executive order.
By the National Credit Union
Administration Board on January 19, 2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.
D. Assessment of Federal Regulations
and Policies on Families
Authority and Issuance
The NCUA has determined that this
proposed rule will not affect family
well-being within the meaning of
Section 654 of the Treasury and General
Government Appropriations Act,
1999.31
E. Congressional Review Act
For purposes of Congressional Review
Act, the OMB makes a determination as
to whether a final rule constitutes a
‘‘major’’ rule.32 If a rule is deemed a
‘‘major rule’’ by the OMB, the
Congressional Review Act generally
provides that the rule may not take
effect until at least 60 days following its
publication.33
The Congressional Review Act defines
a ‘‘major rule’’ as any rule that the
Administrator of the Office of
Information and Regulatory Affairs of
the OMB finds has resulted in or is
likely to result in (A) an annual effect
on the economy of $100,000,000 or
more; (B) a major increase in costs or
prices for consumers, individual
industries, Federal, State, or local
government agencies or geographic
regions, or (C) significant adverse effects
on competition, employment,
investment, productivity, innovation, or
on the ability of United States-based
enterprises to compete with foreignbased enterprises in domestic and
export markets.34 As required by the
Congressional Review Act, the NCUA
will submit the final rule and other
appropriate reports to Congress and the
Government Accountability Office for
review.
List of Subjects in 12 CFR Part 791
Administrative practice and
procedure, Credit unions, Sunshine Act.
National Credit Union Administration
12 CFR Chapter VII
For the reasons stated in the
preamble, 12 CFR part 791 is amended
as follows:
PART 791—RULES OF NCUA BOARD
PROCEDURE; PROMULGATION OF
NCUA RULES AND REGULATIONS;
OBSERVANCE OF NCUA BOARD
MEETINGS
1. The authority citation for part 791
is revised to read as follows:
■
Authority: 12 U.S.C. 1766, 1781, 1786,
1787, 1789, and 5 U.S.C. 552b.
2. Subpart D is added to part 791 to
read as follows:
■
Subpart D—Use of Supervisory Guidance
Sec.
791.19 Purpose.
791.20 Implementation of the Interagency
Statement.
791.21 Rule of construction.
Appendix A to Subpart D—Statement
Clarifying the Role of Supervisory
Guidance
Subpart D—Use of Supervisory
Guidance
§ 791.19
§ 791.20. Implementation of the
Interagency Statement.
The Statement describes the official
policy of the NCUA with respect to the
use of supervisory guidance in the
supervisory process. The Statement is
binding on the NCUA.
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§ 791.21
31 Public
Law 105–277, 112 Stat. 2681 (1998).
32 5 U.S.C. 801 et seq.
33 5 U.S.C. 801(a)(3).
34 5 U.S.C. 804(2).
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Purpose.
The NCUA issues regulations and
guidance as part of its supervisory
function. This subpart reiterates the
distinctions between regulations and
guidance, as stated in the Interagency
Statement Clarifying the Role of
Supervisory Guidance (Interagency
Statement) and provides that the
Statement is binding on the NCUA.
Rule of construction.
Appendix A to this subpart does not
alter the legal status of guidance that is
authorized by statute, including but not
limited to 12 U.S.C. 1781, 1786, and
1789, to create binding legal obligations.
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Fmt 4700
Sfmt 4700
7957
Appendix A to Subpart D—Statement
Clarifying the Role of Supervisory
Guidance
Statement Clarifying the Role of Supervisory
Guidance
The National Credit Union Administration
is responsible for promoting safety and
soundness and effective consumer protection
at Federal credit unions. The NCUA is
issuing this statement to explain the role of
supervisory guidance and to describe its
approach to supervisory guidance.
Difference Between Supervisory Guidance
and Laws or Regulations
(1) The NCUA issue various types of
supervisory guidance, including interagency
statements, advisories, bulletins, policy
statements, questions and answers, and
frequently asked questions, to their
respective supervised institutions. A law or
regulation has the force and effect of law.1
Unlike a law or regulation, supervisory
guidance does not have the force and effect
of law, and the NCUA do not take
enforcement actions based on supervisory
guidance. Rather, supervisory guidance
outlines the NCUA’s supervisory
expectations or priorities and articulates the
agency’s general views regarding appropriate
practices for a given subject area. Supervisory
guidance often provides examples of
practices that the agency generally considers
consistent with safety-and-soundness
standards or other applicable laws and
regulations, including those designed to
protect consumers. Supervised institutions at
times request supervisory guidance, and such
guidance is important to provide insight to
industry, as well as supervisory staff, in a
transparent way that helps to ensure
consistency in the supervisory approach.
Ongoing Agency Efforts To Clarify the Role
of Supervisory Guidance
(2) The NCUA is clarifying the following
policies and practices related to supervisory
guidance:
(i) The NCUA intends to limit the use of
numerical thresholds or other ‘‘bright-lines’’
in describing expectations in supervisory
guidance. Where numerical thresholds are
used, the NCUA intends to clarify that the
thresholds are exemplary only and not
suggestive of requirements. The agency will
continue to use numerical thresholds to
tailor, and otherwise make clear, the
applicability of supervisory guidance or
programs to supervised institutions, and as
required by statute.
(ii) Examiners will not criticize (through
the issuance of matters requiring attention,
matters requiring immediate attention,
matters requiring board attention, documents
of resolution, and supervisory
recommendations) a supervised financial
institution for, and the NCUA will not issue
an enforcement action on the basis of, a
‘‘violation’’ of or ‘‘non-compliance’’ with
1 Government agencies issue regulations that
generally have the force and effect of law. Such
regulations generally take effect only after the
agency proposes the regulation to the public and
responds to comments on the proposal in a final
rulemaking document.
E:\FR\FM\03FER1.SGM
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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations
supervisory guidance. 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.
(iii) Supervisory criticisms should
continue to be specific as to practices,
operations, financial conditions, or other
matters that could have a negative effect on
the safety and soundness of the financial
institution, could cause consumer harm, or
could cause violations of laws, regulations,
final agency orders, or other legally
enforceable conditions.
(iv) The NCUA also has at times sought,
and may continue to seek, public comment
on supervisory guidance. Seeking public
comment on supervisory guidance does not
mean that the guidance is intended to be a
regulation or have the force and effect of law.
The comment process helps the agency to
improve its understanding of an issue, to
gather information on institutions’ risk
management practices, or to seek ways to
achieve a supervisory objective most
effectively and with the least burden on
institutions.
(v) The NCUA will aim to reduce the
issuance of multiple supervisory guidance
documents on the same topic and will
generally limit such multiple issuances going
forward.
(3) The NCUA will continue efforts to
make the role of supervisory guidance clear
in their communications to examiners and to
supervised financial institutions and
encourage supervised institutions with
questions about this statement or any
applicable supervisory guidance to discuss
the questions with their appropriate agency
contact.
[FR Doc. 2021–01867 Filed 2–2–21; 8:45 am]
BILLING CODE 7535–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 97
[Docket No. 31352; Amdt. No. 3941]
Standard Instrument Approach
Procedures, and Takeoff Minimums
and Obstacle Departure Procedures;
Miscellaneous Amendments
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
AGENCY:
This rule establishes, amends,
suspends, or removes Standard
Instrument Approach Procedures
(SIAPS) and associated Takeoff
Minimums and Obstacle Departure
procedures (ODPs) for operations at
certain airports. These regulatory
actions are needed because of the
adoption of new or revised criteria, or
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SUMMARY:
VerDate Sep<11>2014
15:49 Feb 02, 2021
Jkt 253001
because of changes occurring in the
National Airspace System, such as the
commissioning of new navigational
facilities, adding new obstacles, or
changing air traffic requirements. These
changes are designed to provide safe
and efficient use of the navigable
airspace and to promote safe flight
operations under instrument flight rules
at the affected airports.
DATES: This rule is effective February 3,
2021. The compliance date for each
SIAP, associated Takeoff Minimums,
and ODP is specified in the amendatory
provisions.
The incorporation by reference of
certain publications listed in the
regulations is approved by the Director
of the Federal Register as of February 3,
2021.
ADDRESSES: Availability of matters
incorporated by reference in the
amendment is as follows:
For Examination
1. U.S. Department of Transportation,
Docket Ops-M30. 1200 New Jersey
Avenue SE, West Bldg., Ground Floor,
Washington, DC 20590–0001.
2. The FAA Air Traffic Organization
Service Area in which the affected
airport is located;
3. The office of Aeronautical
Navigation Products, 6500 South
MacArthur Blvd., Oklahoma City, OK
73169 or,
4. The National Archives and Records
Administration (NARA). For
information on the availability of this
material at NARA, email fedreg.legal@
nara.gov or go to: https://
www.archives.gov/federal-register/cfr/
ibr-locations.html.
Availability
All SIAPs and Takeoff Minimums and
ODPs are available online free of charge.
Visit the National Flight Data Center at
nfdc.faa.gov to register. Additionally,
individual SIAP and Takeoff Minimums
and ODP copies may be obtained from
the FAA Air Traffic Organization
Service Area in which the affected
airport is located.
FOR FURTHER INFORMATION CONTACT:
Thomas J. Nichols, Flight Procedures
and Airspace Group, Flight
Technologies and Procedures Division,
Flight Standards Service, Federal
Aviation Administration. Mailing
Address: FAA Mike Monroney
Aeronautical Center, Flight Procedures
and Airspace Group, 6500 South
MacArthur Blvd., Registry Bldg. 29,
Room 104, Oklahoma City, OK 73169.
Telephone (405) 954–4164.
SUPPLEMENTARY INFORMATION: This rule
amends 14 CFR part 97 by establishing,
PO 00000
Frm 00032
Fmt 4700
Sfmt 4700
amending, suspending, or removes
SIAPS, Takeoff Minimums and/or
ODPS. The complete regulatory
description of each SIAP and its
associated Takeoff Minimums or ODP
for an identified airport is listed on FAA
form documents which are incorporated
by reference in this amendment under 5
U.S.C. 552(a), 1 CFR part 51, and 14
CFR part 97.20. The applicable FAA
Forms 8260–3, 8260–4, 8260–5, 8260–
15A, 8260–15B, when required by an
entry on 8260–15A, and 8260–15C.
The large number of SIAPs, Takeoff
Minimums and ODPs, their complex
nature, and the need for a special format
make publication in the Federal
Register expensive and impractical.
Further, airmen do not use the
regulatory text of the SIAPs, Takeoff
Minimums or ODPs, but instead refer to
their graphic depiction on charts
printed by publishers or aeronautical
materials. Thus, the advantages of
incorporation by reference are realized
and publication of the complete
description of each SIAP, Takeoff
Minimums and ODP listed on FAA form
documents is unnecessary. This
amendment provides the affected CFR
sections and specifies the typed of
SIAPS, Takeoff Minimums and ODPs
with their applicable effective dates.
This amendment also identifies the
airport and its location, the procedure,
and the amendment number.
Availability and Summary of Material
Incorporated by Reference
The material incorporated by
reference is publicly available as listed
in the ADDRESSES section.
The material incorporated by
reference describes SIAPS, Takeoff
Minimums and/or ODPs as identified in
the amendatory language for part 97 of
this final rule.
The Rule
This amendment to 14 CFR part 97 is
effective upon publication of each
separate SIAP, Takeoff Minimums and
ODP as amended in the transmittal.
Some SIAP and Takeoff Minimums and
textual ODP amendments may have
been issued previously by the FAA in a
Flight Data Center (FDC) Notice to
Airmen (NOTAM) as an emergency
action of immediate flights safety
relating directly to published
aeronautical charts.
The circumstances that created the
need for some SIAP and Takeoff
Minimums and ODP amendments may
require making them effective in less
than 30 days. For the remaining SIAPs
and Takeoff Minimums and ODPs, an
effective date at least 30 days after
publication is provided.
E:\FR\FM\03FER1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 21 (Wednesday, February 3, 2021)]
[Rules and Regulations]
[Pages 7949-7958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01867]
=======================================================================
-----------------------------------------------------------------------
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 791
[Docket No. NCUA-2020-0098]
RIN 3133-AF28
Role of Supervisory Guidance
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The NCUA Board is adopting a final rule that codifies the
Interagency Statement Clarifying the Role of
[[Page 7950]]
Supervisory Guidance, issued by the NCUA, Federal Deposit Insurance
Corporation (FDIC), the Board of Governors of the Federal Reserve (the
Board), the Office of Comptroller of the Currency (OCC), and the
Consumer Financial Protection Bureau (Bureau) (collectively, the
agencies) on September 11, 2018 (2018 Statement). By codifying the 2018
Statement, with amendments, the final rule confirms that the NCUA will
continue to follow and respect the limits of administrative law in
carrying out their supervisory responsibilities. The 2018 Statement
reiterated well-established law by stating that, unlike a law or
regulation, supervisory guidance does not have the force and effect of
law. As such, supervisory guidance does not create binding legal
obligations for the public. Because it is incorporated into the final
rule, the 2018 Statement, as amended, is binding on the NCUA. The final
rule adopts the rule as proposed without change.
DATES: The provisions of this final rule are effective on March 5,
2021.
FOR FURTHER INFORMATION CONTACT: Naghi Khaled, Policy Officer (703)
664-3883 or Scott Neat, Associate Director, Office of Examinations and
Insurance at (703) 518-6363; Ian Marenna, Associate General Counsel, or
Marvin Shaw, Staff Attorney, Office of General Counsel, at the above
address or telephone (703) 518-6540. National Credit Union
Administration, 1775 Duke Street, Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION:
I. Background
The NCUA recognizes the important distinction between issuances
that serve to implement acts of Congress (known as ``regulations'' or
``legislative rules'') and non-binding supervisory guidance
documents.\1\ Regulations create binding legal obligations. Supervisory
guidance is issued by an agency to ``advise the public prospectively of
the manner in which the agency proposes to exercise a discretionary
power'' and does not create binding legal obligations.\2\
---------------------------------------------------------------------------
\1\ Regulations are commonly referred to as legislative rules
because regulations have the ``force and effect of law.'' Perez v.
Mortgage Bankers Association, 575 U.S. 92, 96 (2015) (citations
omitted).
\2\ See Chrysler v. Brown, 441 U.S. 281, 302 (1979) (quoting the
Attorney General's Manual on the Administrative Procedure Act at 30
n.3 (1947) (Attorney General's Manual) and discussing the
distinctions between regulations and general statements of policy,
of which supervisory guidance is one form).
---------------------------------------------------------------------------
In recognition of the important distinction between rules and
guidance, on September 11, 2018, the NCUA along with the Federal
Deposit Insurance Corporation (FDIC), the Board of Governors of the
Federal Reserve (the Board), the Office of Comptroller of the Currency
(OCC), and the Consumer Financial Protection Bureau (Bureau)
(collectively, the agencies) issued the Interagency Statement
Clarifying the Role of Supervisory Guidance (2018 Statement) to explain
the role of supervisory guidance and describe the agencies' approach to
supervisory guidance.\3\ As noted in the 2018 Statement, the agencies
issue various types of supervisory guidance to their respective
supervised institutions, including, but not limited to, interagency
statements, advisories, bulletins, policy statements, questions and
answers, and frequently asked questions. Supervisory guidance outlines
the agencies' supervisory expectations or priorities and articulates
the agencies' general views regarding practices for a given subject
area. Supervisory guidance often provides examples of practices that
mitigate risks, or that the agencies generally consider to be
consistent with safety-and-soundness standards or other applicable laws
and regulations, including those designed to protect consumers.\4\ The
agencies noted in the 2018 Statement that supervised institutions at
times request supervisory guidance and that guidance is important to
provide clarity to these institutions, as well as supervisory staff, in
a transparent way that helps to ensure consistency in the supervisory
approach.\5\
---------------------------------------------------------------------------
\3\ See https://www.occ.gov/news-issuances/news-releases/2018/nr-ia-2018-97a.pdf.
\4\ While supervisory guidance offers guidance to the public on
the agencies' approach to supervision under statutes and regulations
and safe and sound practices, the issuance of guidance is
discretionary and is not a prerequisite to an agency's exercise of
its statutory and regulatory authorities. This point reflects the
fact that statutes and legislative rules, not statements of policy,
set legal requirements.
\5\ The Administrative Conference of the United States (ACUS)
has recognized the important role of guidance documents and has
stated that guidance can ``make agency decision-making more
predictable and uniform and shield regulated parties from unequal
treatment, unnecessary costs, and unnecessary risk, while promoting
compliance with the law.'' ACUS, Recommendation 2017-5, Agency
Guidance Through Policy Statements at 2 (adopted December 14, 2017),
available at https://www.acus.gov/recommendation/agency-guidance-through-policy-statements. ACUS also suggests that ``policy
statements are generally better [than legislative rules] for dealing
with conditions of uncertainty and often for making agency policy
accessible.'' Id. ACUS's reference to ``policy statements'' refers
to the statutory text of the APA, which provides that notice and
comment is not required for ``general statements of policy.'' The
phrase ``general statements of policy'' has commonly been viewed by
courts, agencies, and administrative law commentators as including a
wide range of agency issuances, including guidance.
---------------------------------------------------------------------------
The 2018 Statement restated existing law and reaffirmed the
agencies' understanding that supervisory guidance does not create
binding, enforceable legal obligations. The 2018 Statement reaffirmed
that the agencies do not issue supervisory criticisms for
``violations'' of supervisory guidance and described 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 documents 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 agency contact.
On November 5, 2018, the OCC, Board, FDIC, and Bureau each received
a petition for a rulemaking (Petition), as permitted under the
Administrative Procedure Act (APA),\6\ requesting that the agencies
codify the 2018 Statement.\7\ The Petitioners did not submit a petition
to the NCUA, which has no supervisory authority over the financial
institutions that are represented by Petitioners. The NCUA determined
that it was appropriate to join this rulemaking on its own initiative.
References in the preamble to ``agencies'' therefore include the NCUA.
---------------------------------------------------------------------------
\6\ 5 U.S.C. 553(e).
\7\ See Petition for Rulemaking on the Role of Supervisory
Guidance, available at https://bpi.com/wp-content/uploads/2018/11/BPI_PFR_on_Role_of_Supervisory_Guidance_Federal_Reserve.pdf.
---------------------------------------------------------------------------
The Petition argued that a rule on guidance is necessary to bind
future agency leadership and staff to the 2018 Statement's terms. The
Petition also suggested there are ambiguities in the 2018 Statement
concerning how supervisory guidance is used in connection with matters
requiring attention, matters requiring immediate attention
(collectively, MRAs for banks), as well as in connection with other
supervisory actions that should be clarified through a rulemaking. As
explained in the next section, the NCUA examiners use a notification
similar to an MRA called a Document of Resolution (DOR). Finally, the
Petition called for the rulemaking to implement changes in the
agencies' standards for issuing MRAs. Specifically, the Petition
requested that the agencies limit the role of MRAs to addressing
circumstances in which there is a violation of a statute,
[[Page 7951]]
regulation, or order, or demonstrably unsafe or unsound practices.
B. NCUA's Examination and Supervisory Oversight
As a member of the Federal Financial Institution Examination
Council (FFIEC),\8\ the NCUA participates with and generally has
regulations and guidance consistent with the other financial
regulators. Nevertheless, given its different statutory framework, the
NCUA's supervision of Federal credit unions and federally insured,
state-chartered credit unions is different than the other agencies.
With respect to safety and soundness, the Federal Credit Union Act
requires the NCUA to ensure all federally insured credit unions operate
safely and soundly.\9\ In particular, 12 U.S.C. 1786(b) compels the
agency to act to correct unsafe or unsound conditions or practices in
insured credit unions.\10\
---------------------------------------------------------------------------
\8\ https://www.ffiec.gov/.
\9\ There are 21 references to ``safety and soundness'' in the
Federal Credit Union Act. See 12 U.S.C. 1757(5)(A)(vi)(I), 1759(d &
f), 1781(c)(2), 1782(a)(6)(B), 1786(b), 1786(e), 1786(f), 1786(g),
1786(k)(2), 1786(r), 1786(s), and 1790d(h). Similarly, the NCUA
requires federally insured credit unions to comply with relevant
consumer protection statutes and regulations.
\10\ ``Whenever, in the opinion of the Board, any insured credit
union is engaging or has engaged in unsafe or unsound practices in
conducting the business of such credit union, or is in an unsafe or
unsound condition to continue operations as an insured credit union,
or is violating or has violated an applicable law, rule, regulation,
order, or any condition imposed in writing by the Board in
connection with any action on any application, notice, or other
request by the credit union or institution-affiliated party, or is
violating or has violated any written agreement entered into with
the Board, the Board shall serve upon the credit union a statement
with respect to such practices or conditions or violations for the
purpose of securing the correction thereof.''
---------------------------------------------------------------------------
Often, and necessarily, regulatory requirements are not simple
prescriptions that lend themselves to right-or-wrong determinations.
Codifying in regulation all unsafe and unsound conditions and practices
in explicit detail would be unfeasible, especially in light of the
ever-evolving nature of financial services. Highly detailed or
prescriptive regulations would also lead to unintended consequences.
Regulated entities would face additional burden, less flexibility, and
innovation would be stifled.
Notwithstanding these limitations, the NCUA has issued a regulation
that implements the Federal Credit Union Act's requirement that
federally insured credit unions operate safely and soundly. Section
741.3(b) of the NCUA's Rules and Regulation lists various factors the
agency considers ``in determining whether the credit union's financial
condition and policies are both safe and sound.'' Regarding the
continuing insurability of a credit union, Section 741.3(d) of the
NCUA's Rules and Regulation goes on to specify that ``[i]nsurance of
member accounts would not otherwise involve undue risk to the National
Credit Union Share Insurance Fund (NCUSIF).'' \11\
---------------------------------------------------------------------------
\11\ This provision states: ``Any circumstances which may be
unique to the particular credit union concerned shall also be
considered in arriving at the determination of whether or not an
undue risk to the NCUSIF is or may be present. For purposes of this
section, the term `undue risk to the NCUSIF' is defined as a
condition which creates a probability of loss in excess of that
normally found in a credit union and which indicates a reasonably
foreseeable probability of the credit union becoming insolvent
because of such condition, with a resultant claim against the
NCUSIF.''
---------------------------------------------------------------------------
The NCUA needs to be able to address safety and soundness issues
through supervisory determinations that properly evaluate and weigh the
relevant facts and considerations in their totality. For example, a
federally insured credit union may be engaged in an inherently high-
risk activity, but the credit union may mitigate the risk by holding
extra capital and liquidity and adopting leading practices in managing
the underlying risk. Conversely, another institution may have not
adopted sufficient mitigations to offset the risk, leading to undue
risk to the National Credit Union Share Insurance Fund and taxpayers.
Like the other agencies, the NCUA has instructions that set
requirements for how examiners supervise institutions.\12\ For example,
when addressing a concern in a report of examination, examiners are
required to cite the highest authority related to the subject matter,
and describe the root problem including the corresponding details and
facts that support the examiner's conclusion. Examiners can cite agency
guidance when addressing some violations or unsafe or unsound
conditions or practices when they involve a significant degree of
judgment or interpretation in their application. This is necessary and
helpful for both regulated institutions and examiners by standardizing
application of regulatory requirements that require judgment or
interpretation in their application, instead of relying on the
individual views of each examiner. The examiner guidance explains how
the subject relates to a regulatory or statutory requirement and
provides the institution with additional information on the topic.
---------------------------------------------------------------------------
\12\ https://www.ncua.gov/regulation-supervision/manuals-guides/examiners-guide.
---------------------------------------------------------------------------
Pursuant to agency policy, examiners may only include in the
Document of Resolution (DOR) \13\ issues that are significant enough
that they would be escalated to the next level of enforcement for
failure to correct the problem. These types of problems are defined as:
---------------------------------------------------------------------------
\13\ The Document of Resolution section of the NCUA's report of
examination is the equivalent of Matters Requiring Immediate
Attention used by the other banking agencies.
---------------------------------------------------------------------------
Unsafe or unsound practices that reasonably threaten the
stability of the credit union--that is, any action or lack of action
that, if left uncorrected, may result in substantial loss or damage to
the credit union or its members.
Violations of law or regulation that are systemic,
recurring, or that result from willful neglect.
With that statutory and regulatory background in mind, the NCUA
uses DORs to address practices that result in substantive noncompliance
with laws or rules, enforcement actions, or conditions imposed in
writing. The NCUA's policy is to identify deficient practices and
violations in a timely manner and encourage corrective action well
before deficiencies affect a credit union's financial condition or
viability.
II. The Proposed Rule and Comments Received
On November 5, 2020, the agencies issued a proposed rule (Proposed
Rule) that would codify the 2018 Statement, with clarifying changes, as
an appendix to proposed rule text.\14\ The Proposed Rule would
supersede the 2018 Statement. The rule text would also provide that the
amended version of the 2018 Statement is binding on each respective
agency.
---------------------------------------------------------------------------
\14\ 85 FR 70512 (November 5, 2020).
---------------------------------------------------------------------------
Clarification of the 2018 Statement
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 MRAs are covered by the 2018 Statement.
Accordingly, the agencies proposed to clarify in the Proposed Rule that
the term ``criticize'' includes the issuance of MRAs and other
supervisory criticisms such as DORs, including those communicated
through matters requiring board attention, documents of resolution, and
supervisory recommendations (collectively,
[[Page 7952]]
supervisory criticisms).\15\ As such, the agencies reiterated that
examiners will not base supervisory criticisms on a ``violation'' of or
``non-compliance with'' supervisory guidance. The agencies noted 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 reiterated that they will not issue an enforcement action
on the basis of a ``violation'' of or ``non-compliance'' with
supervisory guidance. The Proposed Rule reflected these
clarifications.\16\
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\15\ The agencies use different terms to refer to supervisory
actions that are similar to MRAs and Matters Requiring Immediate
Attention (MRIAs), including matters requiring board attention,
documents of resolution, and supervisory recommendations.
\16\ The 2018 Statement contains the following sentence:
Examiners will not criticize a supervised financial institution
for a ``violation'' of supervisory guidance.
2018 Statement at 2. As revised in the Proposed Rule, this
sentence read as follows:
Examiners will not criticize (including through the issuance of
matters requiring attention, matters requiring immediate attention,
matters requiring board attention, documents of resolution, and
supervisory recommendations) a supervised financial institution for,
and agencies will not issue an enforcement action on the basis of, a
``violation'' of or ``non-compliance'' with supervisory guidance.
Proposed Rule (emphasis added). As discussed infra in footnote
12, the Proposed Rule also removed the sentences in the 2018
Statement that referred to ``citation,'' which the Petition
suggested had been confusing. These sentences were also removed to
clarify that the focus of the Proposed Rule related to the use of
guidance, not the standards for MRAs.
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The Petition requested further that these supervisory criticisms
should not include ``generic'' or ``conclusory'' references to safety
and soundness. The agencies agreed that supervisory criticisms should
continue to be specific as to practices, operations, financial
conditions, or other matters that could have a negative effect on the
safety and soundness of the financial institution, could cause consumer
harm, or could cause violations of laws, regulations, final agency
orders, or other legally enforceable conditions. Accordingly, the
agencies included language reflecting this practice in the Proposed
Rule.
The Petition also suggested that MRAs, as well as memoranda of
understanding (MOUs), examination downgrades, and any other formal
examination mandate or sanction, should be based only on a violation of
a statute, regulation, or order, including a ``demonstrably unsafe or
unsound practice.'' \17\ As noted in the Proposed Rule, examiners all
take steps to identify deficient practices before they rise to
violations of law or regulation or before they constitute unsafe or
unsound banking practices. The agencies stated that they continue to
believe that early identification of deficient practices serves the
interest of the public and of supervised institutions. Early
identification protects the safety and soundness of banks and credit
unions promotes consumer protection and reduces the costs and risk of
deterioration of financial condition from deficient practices resulting
in violations of laws or regulations, unsafe or unsound conditions, or
unsafe or unsound practices. The Proposed Rule also noted that the
agencies have different supervisory processes, including for issuing
supervisory criticisms. For these reasons, the agencies did not propose
revisions to their respective supervisory practices relating to
supervisory criticisms.
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\17\ The Petition asserted that the federal banking agencies
rely on 12 U.S.C. 1818(b)(1) when issuing MRAs based on safety-and-
soundness matters. Through statutory examination and reporting
authorities, Congress has conferred upon the agencies the authority
to exercise visitorial powers with respect to supervised
institutions. The Supreme Court has indicated support for a broad
reading of the agencies' visitorial powers. See, e.g., Cuomo v.
Clearing House Assn L.L.C., 557 U.S. 519 (2009); United States v.
Gaubert, 499 U.S. 315 (1991); and United States v. Philadelphia Nat.
Bank, 374 U.S. 321 (1963). The visitorial powers facilitate early
identification of supervisory concerns that may not rise to a
violation of law, unsafe or unsound banking practice, or breach of
fiduciary duty under 12 U.S.C. 1818. For credit unions, the
corresponding provision is 12 U.S.C. 1786.
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The agencies also noted that the 2018 Statement was intended to
focus on the appropriate use of supervisory guidance in the supervisory
process, rather than the standards for supervisory criticisms. To
address any confusion concerning the scope of the 2018 Statement, the
Proposed Rule removed two sentences from the 2018 Statement concerning
grounds for ``citations'' and the handling of deficiencies that do not
constitute violations of law.\18\
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\18\ The following sentences from the 2018 Statement were not
present in the Proposed Rule:
Rather, any citations will be for violations of law, regulation,
or non-compliance with enforcement orders or other enforceable
conditions. During examinations and other supervisory activities,
examiners may identify unsafe or unsound practices or other
deficiencies in risk management, including compliance risk
management, or other areas that do not constitute violations of law
or regulation.
2018 Statement at 2. The agencies did not intend these deletions
to indicate a change in supervisory policy.
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Comments on the Proposed Rule
A. NCUA Specific Comments
The NCUA received 13 comments specifically focusing on credit union
concerns about the Proposed Rule. These commenters, which included
national trade associations, state credit union leagues, and credit
unions, generally supported he proposed rule. Six comments were sent
jointly to each regulator, two were from associations that provided
similar comments to the CFPB, and five were comments provided solely to
the NCUA. Topics discussed within the scope of the proposal are issues
addressing the effect and applicability of the guidance. Issues beyond
the scope of the rule addressed coordination with other Federal and
State regulatory authorities, consistency in applying guidance, the
examination cycle, the need for an appeals process, and the need for
the Board to issue more guidance on various topics.
One commenter stated that each guidance statement from the NCUA
should include a notice that it is nonbinding. In addition, the
commenter believed that the NCUA should add a notice to each guidance
statement to support that credit unions are fully permitted to develop
their own approaches to compliance issues, and that the examiner's
recommendations or suggestions do not eliminate the ability of the
credit union to implement its specific solutions.
Aside from expressing general support for the rule, most credit
union specific comments were beyond the scope of the rulemaking. Three
commenters requested that the NCUA improve coordination with respect to
other Federal regulators, especially CFPB and FINCEN. Two commenters
also requested that NCUA improve coordination with state supervisory
authorities. The commenters stated that such enhanced coordination
would help avoid overlapping or consecutive examinations, which they
stated imposes operational burdens and utilizes critical staff member
time. With respect to state guidance, two commenters stated that the
NCUA must ensure state regulators understand how the NCUA will
incorporate state reliance on state guidance into joint examinations or
in alternating examinations where the NCUA may be the lead agency.
Two commenters stated that there should be more consistent
application of the rules and guidance across regions, with examples
provided about BSA/AML and audit reports. One commenter recommended
that the NCUA should create a task force to evaluate
[[Page 7953]]
inconsistent application of guidance comprised of credit union
officials and staff.
One commenter stated that the NCUA Interpretive Rules and Policy
Statements (IRPS) are part exempted interpretive rules and covered
policy statements. NCUA might consider explicitly identifying existing
and future issuances as either covered supervisory guidance or exempt
interpretive rule to provide clarity for stakeholders.
B. Comments to All the Agencies Including the NCUA
In addition, the agencies received 30 comments concerning the
Proposed Rule.\19\ Commenters representing trade associations for
banking institutions and other businesses, state bankers' associations,
individual financial institutions, and one member of Congress expressed
support for the proposed rule. These commenters supported codification
of the 2018 Interagency Statement and the reiteration by the agencies
that guidance does not have the force of law and cannot give rise to
binding, enforceable legal obligations. One of these commenters stated
that the proposal would serve the interests of consumers and
competition by allowing institutions to know what the law is and to
develop innovative products that serve consumers and business clients,
without uncertainty regarding potential regulatory consequences. These
commenters expressed strong support as well for the clarification in
the Proposed Rule that the Agencies will not criticize, including
through the issuance of ``matters requiring attention,'' a supervised
financial institution for a ``violation'' of, or ``non-compliance''
with, supervisory guidance.
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\19\ Of the comments received, some comments were not submitted
to all agencies, some comments were identical, and many comments
were directed at an unrelated rulemaking by the Financial Crimes
Enforcement Network of the Department of the Treasury (FinCEN).
---------------------------------------------------------------------------
One commenter agreed with the agencies that supervisory criticisms
should not be limited to violation of statutes, regulations, or order,
including a ``demonstrable unsafe or unsound practice'' and that
supervisory guidance remains a beneficial tool to communicate
supervisory expectations to the industry. The commenter stated that the
proactive identification of supervisory criticism or deficiencies that
do not constitute violations of law facilitates forward-looking
supervision, which helps address problems before they warrant a formal
enforcement action. The commenter noted as well that supervisory
guidance provides important insight to industry and ensures consistency
in the supervisory approach and that supervised institutions frequently
request supervisory guidance. The commenter observed that the pandemic
has amplified the requests for supervisory guidance and interpretation,
and that it is apparent institutions want clarity and guidance from
regulators.
Two commenters, both advocacy groups, opposed the proposed rule,
suggesting that codifying the 2018 Statement may undermine the
important role that supervisory guidance can play by informing
supervisory criticism, rather than merely clarifying that it will not
serve as the basis for enforcement actions. One commenter stated that
it is essential for agencies to have the prophylactic authority to base
criticisms on improper practices by financial institutions that may not
yet have ripened into violations of law or significant safety and
soundness concerns. The commenter stated that this is particularly
important with respect to large banks, where delay in addressing
concerns could lead to a broader crisis. One commenter stated that the
agencies have not explained the benefits that would result from the
rule or demonstrated how the rule will promote safety and soundness or
consumer protection. The commenter argued that supervision is different
from other forms of regulation and requires supervisory discretion,
which could be constrained by the rule. One of these commenters argued
that the proposal would send a signal that financial institutions have
wider discretion to ignore supervisory guidance.
B. Scope of Rule
Several commenters requested that the Proposed Rule cover
interpretive rules and clarify that interpretive rules do not have the
force and effect of law. One commenter stated that the agencies should
clarify whether they believe that interpretive rules can be binding.
The commenter argued that, under established legal principles,
interpretive rules can be binding on the issuing agency but not on the
public. Some commenters suggested that the agencies follow ACUS
recommendations for issuing interpretive rules and that the agencies
should clarify when particular guidance documents are or are not
interpretive rules and allow the public to petition and change an
interpretation. A number of commenters requested that the agencies
expand the statement to address the standards that apply to MRAs and
other supervisory criticisms such as DORs, a suggestion made in the
Petition.
C. Role of Guidance Documents
Several commenters recommended that the agencies clarify that the
practices described in supervisory guidance are merely examples of
compliant conduct, not expectations that may form the basis for
supervisory criticism. One commenter suggested that the agencies state
that when agencies offer examples of safe and sound conduct, compliance
with consumer protection standards, appropriate risk management
practices, or acceptable practices through supervisory guidance or
interpretive rules, the Agencies will treat adherence to that
supervisory guidance or interpretive rule as deemed compliance. One
commenter also requested that the agencies make clear that guidance
that goes through public comment, as well as any examples used in
guidance, are not binding. The commenter also requested that the
agencies affirm that they will apply statutory factors while processing
applications.
One commenter argued that guidance provides valuable information to
supervisors about how their discretion should be exercised and
therefore plays an important role in supervision. According to this
commenter, 12 U.S.C. 1831p-1 and 12 U.S.C. 1818 recognize the
discretionary power conferred on banking agencies separate from the
power to issue regulations. The commenter noted that, pursuant to these
statutes, regulators may issue cease and desist orders based on a
reasonable cause to believe that an institution has engaged, is
engaging or is about to engage in an unsafe and unsound practice,
separately and apart from whether the institution has technically
violated a law or regulation. The commenter added that Congress
entrusted the agencies with the power to determine whether practices
are unsafe and unsound and attempt to halt such practices through
supervision, even if a specific case may not constitute a violation of
a written law or regulation.
D. Supervisory Criticisms
Several commenters addressed supervisory criticisms and how they
relate to guidance. Commenters suggested that supervisory criticisms
should be specific as to practices, operations, financial conditions,
or other matters that could have a negative effect. Commenters
suggested that MRAs, memoranda of understanding and any other formal
written mandates or sanctions should be based only on a violation of a
statute or regulation. Similarly, commenters argued that there should
be no references to guidance in
[[Page 7954]]
written formal actions and that banking institutions should be
reassured that they will not be criticized or cited for a violation of
guidance when no law or regulation is cited. One commenter suggested
that it would instead be appropriate to discuss supervisory guidance
privately, rather than publicly, potentially during the pre-exam
meetings or during examination exit meetings. Another commenter
suggested that, while referencing guidance in supervisory criticism may
be useful at times, agencies should provide safeguards to prevent such
references from becoming the de facto basis for supervisory criticisms.
One commenter suggested that examiners also should not criticize
community banks in their final written examination reports for not
complying with ``best practices'' unless the criticism involves a
violation of bank policy or regulation. The commenter added that
industry best practices should be transparent enough and sufficiently
known throughout the industry before they are cited in an examination
report. One commenter requested that examiners should not apply large
bank practices to community banks that have a different, less complex
and more conservative business model. One commenter asserted that MRAs
should not be based on ``reputational risk,'' but rather the underlying
conduct giving rise to concerns should be the basis for an MRA and
asked the agencies to address this in the final rule.
Commenters that opposed the proposal did not support restricting
supervisory criticism or sanctions to explicit violations of law or
regulation. One commenter expressed concern that requiring supervisors
to wait for an explicit violation of law before issuing criticism would
effectively erase the line between supervision and enforcement. One
commenter emphasized the importance of bank supervisors basing their
criticisms on imprudent bank practices that may not yet have ripened
into violations of laws or rules but which if left unaddressed could
undermine safety and soundness or pose harm to consumers.
One commenter argued that the agencies should state clearly that
guidance can and will be used by supervisors to inform their
assessments of banks' practices; that it may be cited as, and serve as
the basis for, criticisms. According to the commenter, even under the
``well-established law'' described in the proposal, it is quite
permissible for guidance to be used as a set of standards that may
indeed inform a criticism, provided that application of the guidance is
used for corrective purposes, if not to support an enforcement action.
According to one commenter, the proposal makes fine conceptual
distinctions between, for example, issuing supervisory criticisms ``on
the basis of'' guidance (which is apparently forbidden) and issuing
supervisory criticisms that make ``reference'' to supervisory guidance
(which continues to be permitted). The commenter suggested that is a
distinction that it may be difficult for people to parse in practice.
According to the commenter, a rule that makes such a distinction is
likely to have a chilling effect on supervisors attempting to implement
policy in the field. According to another commenter, the language
allowing examiners to reference supervisory guidance to provide
examples is too vague and threatens to marginalize the role of guidance
to the point that it becomes almost useless in the process of issuing
criticisms designed to correct deficient bank practices.
E. Legal Authority and Visitorial Powers
One commenter questioned the agencies' reference in the proposal to
visitorial powers as an additional authority for early identification
of supervisory concerns that may not rise to a violation of law, unsafe
or unsound banking practice, or breach of fiduciary.
F. Issuance and Management of Supervisory Guidance
Several commenters made suggestions about how the agencies should
issue and manage supervisory guidance. Some comments suggested that the
agencies should clearly delineate between regulations and supervisory
guidance. Commenters encouraged the agencies to regularly review,
update, and potentially rescind outstanding guidance. One commenter
suggested that the agencies rescind outstanding guidance that functions
as a rule but has not gone through notice and comment. One commenter
suggested that the agencies memorialize their intent to revisit and
potentially rescind existing guidance, as well as limit multiple
guidance documents on the same topic. Commenters suggested that
supervisory guidance should be easy to find, readily available, online,
and in a format that is user-friendly and searchable.
One commenter encouraged the agencies to issue principles-based
guidance that does not contain the kind of granularity that could be
misconstrued as binding expectations. According to this commenter, the
agencies can issue separate FAQs with more detailed information but
should clearly identify these as non-binding illustrations. This
commenter also encouraged the agencies to publish proposed guidance for
comment when circumstances allow. One commenter expressed concern that
the agencies will aim to reduce the issuances of multiple supervisory
guidance documents and will thereby reduce the availability of guidance
in circumstances where guidance would be valuable.
Responses to Comments
As stated in the Proposed Rule, the 2018 Statement was intended to
focus on the appropriate use of supervisory guidance in the supervisory
process, rather than the standards for supervisory criticisms. The
standards for issuing MRAs and other supervisory actions such as DORs
were, therefore, outside the scope of this rulemaking. For this reason,
and for reasons discussed earlier, the final rule does not address the
standards for MRAs and other supervisory actions such as DORs.
Similarly, because the NCUA is not addressing approaches to supervisory
criticism in the final rule, including any criticism related to
reputation risk, the final rule does not include standards for
supervisory criticisms relating to ``reputation risk.''
With respect to the comments on coverage of interpretive rules, the
NCUA agrees with the commenter that interpretive rules do not, alone,
``have the force and effect of law'' and must be rooted in, and derived
from, a statute or regulation.\20\ While interpretive rules and
supervisory guidance are similar in lacking the force and effect of
law, interpretive rules and supervisory guidance are distinct under the
APA and its jurisprudence and are generally issued for different
purposes.\21\ Interpretive rules are typically issued by
[[Page 7955]]
an agency to advise the public of the agency's construction of the
statutes and rules that it administers,\22\ whereas general statements
of policy, such as supervisory guidance, advise the public of how an
agency intends to exercise its discretionary powers.\23\ To this end,
guidance generally reflects an agency's policy views, for example, on
practices on safe and sound risk management. On the other hand,
interpretive rules generally resolve ambiguities regarding what
statutes and regulations require. Because supervisory guidance and
interpretive rules have different characteristics and serve different
purposes, the NCUA is adopting the proposed rule's coverage of
supervisory guidance only.
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\20\ See Mortgage Bankers Association, 575 U.S. at 96.
\21\ Questions concerning the legal and supervisory nature of
interpretive rules are case-specific and have engendered debate
among courts and administrative law commentators. The NCUA takes no
position in this rulemaking on those specific debates. See, e.g., R.
Levin, Rulemaking and the Guidance Exemption, 70 Admin. L. Rev. 263
(2018) (discussing the doctrinal differences concerning the status
of interpretive rules under the APA); see also Nicholas R. Parillo,
Federal Agency Guidance and the Powder to Bind: An Empirical Study
of Agencies and Industries, 36 Yale J. Reg 165, 168 n.6 (2019)
(``Whether interpretive rules are supposed to be nonbinding is a
question subject to much confusion that is not fully settled''); see
also ACUS, Recommendation 2019-1, Agency Guidance Through
Interpretive Rules (Adopted June 13, 2019), available at https://www.acus.gov/recommendation/agency-guidance-through-interpretive-rules (noting that courts and commentators have different views on
whether interpretive rules bind an agency and effectively bind the
public through the deference given to agencies' interpretations of
their own rules under Auer v. Robbins, 519 U.S. 452 (1997)).
\22\ Mortgage Bankers Association, 575 U.S. at 97 (citing
Shalala v. Guernsey Memorial Hospital, 514 U.S. 87, 99 (1995));
accord Attorney General's Manual at 30 n.3.
\23\ See Chrysler v. Brown, 441 U.S. at 302 n.31 (quoting
Attorney General's Manual at 30 n.3); see also, e.g., American
Mining Congress v. Mine Safety & Health Administration, 995 F.2d
1106, 1112 (D.C. Cir. 1993) (outlining tests in the D.C. Circuit for
assessing whether an agency issuance is an interpretive rule).
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With respect to the question of whether to adopt ACUS's procedures
for allowing the public to request reconsideration or revision of an
interpretive rule, this rulemaking, again, does not address
interpretive rules. As such, the NCUA is not adding procedures for
challenges to interpretive rules through this rulemaking.
In response to the comment that the agencies treat examples in
guidance as ``safe harbors,'' the NCUA agrees that examples offered in
guidance may provide reassurance about practices that, in general, may
lead to safe and sound operation and compliance with regulations and
statutes. The examples in guidance, however, are typically generalized.
The question of whether the employment of the examples meets
supervisory goals requires consideration of how an institution applies
those examples under the facts and circumstances. In addition, the
underlying legal principle of guidance is that it does not created
binding legal obligation for either the public or an agency. As such,
the NCUA does not intend to deem examples in guidance as categorically
setting safe harbors.\24\
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\24\ The question of whether an example in guidance can provide
a safe harbor would also likely not be a logical outgrowth of the
proposed rule.
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In response to the comment that the proposal may undermine the
important role that supervisory guidance can play by informing
supervisory criticism and by serving to address conditions before those
conditions lead to enforcement actions, the NCUA agrees that the
appropriate use of guidance supports a more collaborative and
constructive regulatory process that supports the safety and soundness
of institutions and diminishes the need for enforcement actions. In
addition, as noted by ACUS, guidance can make agency decision-making
more predictable and uniform and shield regulated parties from unequal
treatment, unnecessary costs, and unnecessary risk, while promoting
compliance with the law. The NCUA intends, therefore, to continue using
guidance to bolster the supervisory process. The NCUA does not view the
final rule as weakening the role of guidance in the supervisory
process. Further, the NCUA will continue to use guidance in a robust
way to support the safety and soundness of credit unions. In response
to the related question from these commenters, which suggested there is
no basis for the rule, the NCUA notes the question of the role of
guidance has been one of interest to regulated parties and other
stakeholders over the past few years. The Petition is evidence of this
interest. As such, the NCUA believes it will serve the public interest
to reaffirm the appropriate role of supervisory guidance.
With respect to the comment that visitorial powers do not provide
the authority to issue supervisory criticisms like DORs, the NCUA
disagrees. The visitorial powers of financial regulators are well-
established. The Supreme Court's decision in Cuomo v. Clearing House
Assn L.L.C. explained that the visitation included the ``exercise of
supervisory power.'' \25\ The Court ruled that the ``power to enforce
the law exists separate and apart from the power of visitation.'' \26\
While the Cuomo decision involved the question of which powers may be
exercised by state governments (and ruled that states could exercise
law enforcement powers but could not exercise visitorial powers), the
decision did not dispute that the Federal agencies possess both these
powers. The Court in Cuomo explained that visitorial powers entailed
``oversight and supervision,'' while the Court's earlier decision in
Watters v. Wachovia Bank, N.A. explained that visitorial powers
entailed ``general supervision and control.'' \27\ Accordingly,
visitorial powers include the power to issue supervisory criticisms
independent of the agencies' authority to enforce applicable laws or
ensure safety and soundness. For these reasons, the NCUA reaffirms the
statement in the preamble to the Proposed Rule that such visitorial
powers have been conferred through statutory examination and reporting
authorities, which facilitate the NCUA's identification of supervisory
concerns that may not rise to a violation of law, unsafe or unsound
practice, or breach of fiduciary duty under 12 U.S.C. 1786. In the case
of the federal banking agencies, such statutory examination and
reporting authorities pre-existed 12 U.S.C. 1786, which neither
superseded nor replaced such authorities. Each of the agencies has been
vested with statutory examination and reporting authorities with
respect to institutions under its supervision.\28\
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\25\ 557 U.S. 519, 536 (2009).
\26\ Id. at 533.
\27\ 550 U.S. 1, 127 (2007).
\28\ The commenter's reading of the agencies' examination and
reporting authorities would assert that the agencies may examine
supervised institutions and require reports, but not make findings
based on such examinations and reporting, unless the finding is
sufficient to warrant a formal enforcement action under the standard
set out in 12 U.S.C. 1818 for banks. This reading is inconsistent
with the history of federal financial supervision, including as
described in the cases cited in the Proposed Rule.
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In response to the commenter's request regarding guidance issued
for public comment, the NCUA notes that it has made clear through the
2018 Statement and in this final rule that supervisory guidance
(including guidance that goes through public comment) does not create
binding, enforceable legal obligations. Rather, the NCUA issues
guidance for comment in order to improve its understanding of an issue,
gather information, or seek ways to achieve a supervisory objective
most effectively. Similarly, examples that are included in supervisory
guidance are not binding on institutions. Rather, these examples are
intended to be illustrative of ways a supervised institution may
implement safe and sound practices, appropriate consumer protection,
prudent risk management, or other actions to comply with laws or
regulations.
With respect to the commenter's request that the agencies affirm
that they will apply statutory factors while processing applications,
the NCUA affirms that the agency will continue to consider and apply
all applicable statutory factors when processing applications.
In response to the question raised by some commenters concerning
potential confusion between guidance and interpretive rules, the NCUA
notes that interpretive rules are outside the scope of the rulemaking.
In addition, as stated earlier, while both guidance and interpretive
rules serve different purposes, both lack the force and effect of law.
Interpretive rules must be rooted
[[Page 7956]]
in the statutes and regulations those rules interpret. As for
identification of these documents, the NCUA generally does, identify
guidance and interpretive rules and will continue to do so going
forward.
In response to the two commenters opposing the Proposal, this final
rule does not undermine any of the NCUA's safety and soundness
authorities. Indeed, the final rule is designed to solidify the NCUA's
ability to enforce the very matters of most importance. In addition,
the NCUA notes the question of the role of guidance has been one of
interest to regulated parties and other stakeholders over the past few
years. The Petition is evidence of this interest. As such, the NCUA
believes it will serve the public interest to reaffirm the appropriate
role of supervisory guidance. Therefore, the NCUA is proceeding with
the rule as proposed.
One credit union commenter stated that examiners should only use
regulatory requirements as the basis to assess credit union operations,
and afford credit unions the opportunity to demonstrate that their
practices, which may deviate from the examples provided in supervisory
guidance, nonetheless constitute safe and sound practices that meet
regulatory requirements. The NCUA notes that the final rule clearly
indicates that examiners will not criticize a supervised financial
institution for, and the NCUA will not issue an enforcement action on
the basis of, a ``violation'' of or ``non-compliance'' with supervisory
guidance. Nevertheless, examiners may reference supervisory guidance to
provide examples of safe and sound practices, appropriate consumer
protection and risk management practices, and other actions for
addressing compliance with laws or regulations.
Another commenter requested that all supervisory guidance be
published for public comment before being issued. The commenter argued
that this process would reinforce the nature of the guidance and
provide credit unions a role in helping to achieve vetted guidance that
is useful to their operations. The NCUA does not agree with this
comment as publishing each supervisory guidance for public comment
would prevent it from being issued timely to provide examples of safe
and sound practices, appropriate consumer protection and risk
management practices, and other actions for addressing compliance with
laws or regulations where applicable. As stated in response to other
comments, the NCUA's position is the underlying legal principal of
guidance is that it does not create a binding legal obligation for
either the public or an agency.
One comment stated that the NCUA should include a notice in each
supervisory guidance indicating that it is nonbinding. The NCUA
believes such a notice is not necessary, given that the final rule
reflects the NCUA's position that the underlying legal principal of
supervisory guidance is that it does not created binding legal
obligation for either the public or an agency.
One comment recommended identifying existing and future issuances
of NCUA Interpretive Rules and Policy Statements (IRPS) as either a
covered supervisory guidance or an exempt interpretive rule to provide
clarity for credit unions. The NCUA reiterates that interpretive rules
are outside the scope of this rulemaking. However, as stated in the
proposed rule, while both guidance and interpretive rules serve
different purposes, both lack the force and effect of law. As for
identification of NCUA IRPS issuances, the NCUA generally does identify
guidance and interpretive rules and will continue to do so going
forward.
Comments Beyond the Scope of the Rulemaking
Most comments by credit union affiliated commenters were beyond the
scope of the rulemaking, including the need for coordination with other
Federal and State regulatory authorities, consistency in applying
guidance, the examination cycle, the need for an appeals process, and
the need for the Board to issue more guidance on various topics. Given
that these comments addressed issues not relevant to the guidance
rulemaking, the NCUA has determined that it is more appropriate to
assess them outside the context of this rulemaking. Nevertheless, the
Board agrees with the commenters that is important to enhance
coordination with other regulatory authorities and apply guidance
consistently.
III. The Final Rule
For the reasons discussed above, the final rule adopts the Proposed
Rule without change. However, the NCUA has decided to issue a final
rule that is specifically addressed to the NCUA and NCUA-supervised
institutions, rather than the joint version that the five agencies
included in their joint Proposal. Although many of the comments were
applicable to all of the agencies, some comments were specific to
particular agencies or to groups of agencies. Having separate final
rules has enabled agencies to better focus on explaining any agency-
specific issues to their respective audiences of supervised
institutions and agency employees.
IV. Administrative Law Matters
A. Paperwork Reduction Act Analysis
The Paperwork Reduction Act of 1995 \29\ (PRA) states that no
agency may conduct or sponsor, nor is the respondent required to
respond to, an information collection unless it displays a currently
valid Office of Management and Budget (OMB) control number. The NCUA
has reviewed this final rule and determined that it does not contain
any information collection requirements subject to the PRA.
Accordingly, no submissions to OMB will be made with respect to this
final rule.
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\29\ 44 U.S.C. 3501-3521.
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B. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) generally requires that, in
connection with a notice of proposed rulemaking, an agency prepare and
make available for public comment an initial regulatory flexibility
analysis that describes the impact of a proposed rule on small
entities. A regulatory flexibility analysis is not required, however,
if the agency certifies that the rule will not have a significant
economic impact on a substantial number of small entities (defined by
the NCUA for purposes of the RFA to include federally insured credit
unions with assets less than $100 million) \30\ and publishes its
certification and a short, explanatory statement in the Federal
Register together with the rule. This rule will not impose any
obligations on federally insured credit unions, and regulated entities
will not need to take any action in response to this rule. The NCUA
certifies that the rule will not have a significant economic impact on
a substantial number of small entities. The NCUA received no comments
in response to its request for comments on this analysis.
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\30\ NCUA Interpretive Ruling and Policy Statement (IRPS) 87-2,
as amended by IRPS 03-2 and 15-1, available at https://www.ncua.gov/files/publications/irps/IRPS1987-2.pdf.
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C. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, the NCUA, an
independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive order. This rule will not have
a substantial direct effect on the states, on the connection between
the national government and the states, or on the
[[Page 7957]]
distribution of power and responsibilities among the various levels of
government. The NCUA has determined this rule does not constitute a
policy that has federalism implications for purposes of the executive
order.
D. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this proposed rule will not affect
family well-being within the meaning of Section 654 of the Treasury and
General Government Appropriations Act, 1999.\31\
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\31\ Public Law 105-277, 112 Stat. 2681 (1998).
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E. Congressional Review Act
For purposes of Congressional Review Act, the OMB makes a
determination as to whether a final rule constitutes a ``major''
rule.\32\ If a rule is deemed a ``major rule'' by the OMB, the
Congressional Review Act generally provides that the rule may not take
effect until at least 60 days following its publication.\33\
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\32\ 5 U.S.C. 801 et seq.
\33\ 5 U.S.C. 801(a)(3).
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The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in (A)
an annual effect on the economy of $100,000,000 or more; (B) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies or geographic regions, or
(C) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\34\ As required by the Congressional Review Act, the
NCUA will submit the final rule and other appropriate reports to
Congress and the Government Accountability Office for review.
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\34\ 5 U.S.C. 804(2).
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List of Subjects in 12 CFR Part 791
Administrative practice and procedure, Credit unions, Sunshine Act.
By the National Credit Union Administration Board on January 19,
2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.
National Credit Union Administration
12 CFR Chapter VII
Authority and Issuance
For the reasons stated in the preamble, 12 CFR part 791 is amended
as follows:
PART 791--RULES OF NCUA BOARD PROCEDURE; PROMULGATION OF NCUA RULES
AND REGULATIONS; OBSERVANCE OF NCUA BOARD MEETINGS
0
1. The authority citation for part 791 is revised to read as follows:
Authority: 12 U.S.C. 1766, 1781, 1786, 1787, 1789, and 5 U.S.C.
552b.
0
2. Subpart D is added to part 791 to read as follows:
Subpart D--Use of Supervisory Guidance
Sec.
791.19 Purpose.
791.20 Implementation of the Interagency Statement.
791.21 Rule of construction.
Appendix A to Subpart D--Statement Clarifying the Role of
Supervisory Guidance
Subpart D--Use of Supervisory Guidance
Sec. 791.19 Purpose.
The NCUA issues regulations and guidance as part of its supervisory
function. This subpart reiterates the distinctions between regulations
and guidance, as stated in the Interagency Statement Clarifying the
Role of Supervisory Guidance (Interagency Statement) and provides that
the Statement is binding on the NCUA.
Sec. 791.20. Implementation of the Interagency Statement.
The Statement describes the official policy of the NCUA with
respect to the use of supervisory guidance in the supervisory process.
The Statement is binding on the NCUA.
Sec. 791.21 Rule of construction.
Appendix A to this subpart does not alter the legal status of
guidance that is authorized by statute, including but not limited to 12
U.S.C. 1781, 1786, and 1789, to create binding legal obligations.
Appendix A to Subpart D--Statement Clarifying the Role of Supervisory
Guidance
Statement Clarifying the Role of Supervisory Guidance
The National Credit Union Administration is responsible for
promoting safety and soundness and effective consumer protection at
Federal credit unions. The NCUA is issuing this statement to explain
the role of supervisory guidance and to describe its approach to
supervisory guidance.
Difference Between Supervisory Guidance and Laws or Regulations
(1) The NCUA issue various types of supervisory guidance,
including interagency statements, advisories, bulletins, policy
statements, questions and answers, and frequently asked questions,
to their respective supervised institutions. A law or regulation has
the force and effect of law.\1\ Unlike a law or regulation,
supervisory guidance does not have the force and effect of law, and
the NCUA do not take enforcement actions based on supervisory
guidance. Rather, supervisory guidance outlines the NCUA's
supervisory expectations or priorities and articulates the agency's
general views regarding appropriate practices for a given subject
area. Supervisory guidance often provides examples of practices that
the agency generally considers consistent with safety-and-soundness
standards or other applicable laws and regulations, including those
designed to protect consumers. Supervised institutions at times
request supervisory guidance, and such guidance is important to
provide insight to industry, as well as supervisory staff, in a
transparent way that helps to ensure consistency in the supervisory
approach.
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\1\ Government agencies issue regulations that generally have
the force and effect of law. Such regulations generally take effect
only after the agency proposes the regulation to the public and
responds to comments on the proposal in a final rulemaking document.
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Ongoing Agency Efforts To Clarify the Role of Supervisory Guidance
(2) The NCUA is clarifying the following policies and practices
related to supervisory guidance:
(i) The NCUA intends to limit the use of numerical thresholds or
other ``bright-lines'' in describing expectations in supervisory
guidance. Where numerical thresholds are used, the NCUA intends to
clarify that the thresholds are exemplary only and not suggestive of
requirements. The agency will continue to use numerical thresholds
to tailor, and otherwise make clear, the applicability of
supervisory guidance or programs to supervised institutions, and as
required by statute.
(ii) Examiners will not criticize (through the issuance of
matters requiring attention, matters requiring immediate attention,
matters requiring board attention, documents of resolution, and
supervisory recommendations) a supervised financial institution for,
and the NCUA will not issue an enforcement action on the basis of, a
``violation'' of or ``non-compliance'' with
[[Page 7958]]
supervisory guidance. 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.
(iii) Supervisory criticisms should continue to be specific as
to practices, operations, financial conditions, or other matters
that could have a negative effect on the safety and soundness of the
financial institution, could cause consumer harm, or could cause
violations of laws, regulations, final agency orders, or other
legally enforceable conditions.
(iv) The NCUA also has at times sought, and may continue to
seek, public comment on supervisory guidance. Seeking public comment
on supervisory guidance does not mean that the guidance is intended
to be a regulation or have the force and effect of law. The comment
process helps the agency to improve its understanding of an issue,
to gather information on institutions' risk management practices, or
to seek ways to achieve a supervisory objective most effectively and
with the least burden on institutions.
(v) The NCUA will aim to reduce the issuance of multiple
supervisory guidance documents on the same topic and will generally
limit such multiple issuances going forward.
(3) The NCUA will continue efforts to make the role of
supervisory guidance clear in their communications to examiners and
to supervised financial institutions and encourage supervised
institutions with questions about this statement or any applicable
supervisory guidance to discuss the questions with their appropriate
agency contact.
[FR Doc. 2021-01867 Filed 2-2-21; 8:45 am]
BILLING CODE 7535-01-P
