In an update to its Policies and Procedures Manual (PPM), the Office of the Comptroller of the Currency (OCC) has revised PPM 5310-3, “Enforcement Action Policy,” dated September 9, 2011. The PPM sets forth the OCC’s policies and procedures for taking enforcement actions against banks, federal savings associations, federal branches, and agencies (“banks”).  The OCC notes that the principles in the PPM may also be considered in taking an enforcement action against a third-party service provider.  The update is effective December 1, 2017.

The PPM covers the following topics and changes to the September 9, 2011 PPM (“old PPM”):

  • Types of enforcement actions. The PPM lists the types of informal and formal enforcement actions the OCC can take. (Such actions are described more fully in appendices A and B to the PPM.) The PPM clarifies that all nonpublic enforcement actions are considered “informal enforcement actions,” including commitment letters, MOUs, operating agreements, and certain conditions imposed in writing under 12 U.S.C. § 1818. It specifically identified Individual Minimum Capital Ratios (“IMCRs”) and Notices of Deficiency under 12 CFR § 30 as new categories of informal enforcement actions. Similarly, the PPM clarifies which actions constitute “formal enforcement actions.” The old PPM specified that formal enforcement actions include orders and formal written agreements under 12 U.S.C. 1818(b), capital directives under 12 U.S.C. § 3907, Prompt Corrective Action directives under 12 U.S.C. § 1831o, and safety and soundness orders under 12 U.S.C. § 1831p. The PPM’s definition of formal enforcement action includes all those things as well as “all enforcement actions enforceable by the OCC in federal court,” Graham Leach Bliley Act Agreements pursuant to 12 CFR § 5.39, and any action in which a civil money penalty is imposed. The PPA also reminds banks that entities subject to certain formal enforcement actions are also deemed to be in “troubled condition” under 12 C.F.R.§ 5.51.
  • Determination of appropriate supervisory or enforcement response. The PPM lists factors that examiners should consider when determining the appropriate response to a bank’s deficiencies and describes the general circumstances under which the OCC will have a presumption in favor of a formal enforcement action, the impact of a bank’s CAMEL or ROCA rating on the OCC’s response to deficiencies, and the OCC’s authority to place a bank into conservatorship or receivership. The changes that the PPM implements in this section do not appear to be substantive. The simply clarify the old PPM.
  • Decision authority. The PPM describes the OCC’s supervision review committees (SRC) that review or make enforcement decisions. While the old PPM specifically discussed the Examiner in Charge’s authority to recommend enforcement actions, the new PPM omits that discussion. In addition, the PPM adds a Major Matters Supervision Review Committee, which will have final authority to make enforcement decisions on major cases. These changes may indicate that enforcement decisions will be handled at a higher level within the OCC. Other changes to this section appear to be primarily organizational in nature.
  • Content of enforcement action documents. The PPM lists the information that must be contained in enforcement documentation once the OCC has determined which deficiencies must be addressed in an enforcement action. While the old PPM did not explicitly require that the underlying basis for the enforcement action be specified, that requirement was added by the PPM. The PPM also added a requirement that enforcement action documents explicitly guide the board or management’s corrective actions and facilitate OCC follow-up.
  • Timeliness of enforcement actions. The PPM states that, whenever possible, a proposed enforcement action should be presented to the bank within 180 days of the start of supervisory activity that results in a formal written communication containing any of five statements listed in the PPM.  In contrast, the old PPM required only that action be taken “as soon as practicable once the need for such action has been identified.” The PPM also states that enforcement action recommendations based on facts gathered through an order of investigation should be presented to the appropriate supervision review committee within 90 days of completion of the investigative work. (Appendix C to the PPM outlines the general process and timeline for each type of enforcement action.) Any extensions to that deadline must be approved by the appropriate deputy comptroller. Under the old PPM, enforcement decisions were to be made more quickly, generally within 15 days of certain key milestones. However, extensions and exceptions only had to be documented, not formally approved.
  • Follow-up activities. The PPM describes the enforcement action follow-up activities that examiners should undertake. The PPM implements certain changes to the timing of the OCC’s follow up. The changes appear designed to both give the OCC more flexibility in scheduling follow-up and to align the follow-up timing with the requirements of any enforcement action. The PPM also specifies that the follow-up should include both verification (assessing compliance) and validation (assessing effectiveness) of the bank’s remedial efforts.
  • Assessment of compliance with enforcement actions. The PPM states that upon the completion of follow-up activities, examiners must determine whether a bank has met the requirements of each article of the enforcement action and designate the article as “in compliance” or “not in compliance.” The PPM describes the circumstances under which each such designation should be used. The old PPM included a strong presumption in favor of escalated enforcement when the bank was not in compliance on certain types of issues. The PPM does not discuss this presumption.
  • Communication of enforcement action compliance. The PPM describes the contents of formal communications from examiners to a bank that discuss compliance with an enforcement action and the types of communications from a bank to the OCC that follow an enforcement action. This requirement was not contained in the old PPM.
  • Termination of enforcement actions. The PPM describes the circumstances that permit termination of an enforcement action and the considerations for determining when to escalate an enforcement action or replace an enforcement action with a less severe or comprehensive action. The old PPM did not include specific guidance on when and how an enforcement action would be escalated.
  • The PPM describes the supporting documentation related to an enforcement action that must be included in the OCC’s supervisory information systems. These documentation requirements were spread throughout the old PPM. Consolidating them into one section was likely done to improve consistency and accountability in documenting the enforcement process.
  • Public disclosure of enforcement actions. The PPM describes the public disclosures that the OCC can make in connection with an enforcement action. The PPM specifically reminds banks of the circumstances under which they can and must make such public disclosures. The old PPM did not include this additional guidance.