On July 25, 2022, the FDIC issued Financial Institution Letter (FIL)-34-2022 announcing updates to Chapters 1 and 4 of its Formal and Informal Enforcement Actions Manual (Manual). The Manual includes updates to the minimum standards for the FDIC’s termination of cease-and-desist and consent orders. The updates do not change any rights or obligations of the parties to an enforcement action. The Manual is intended to promote consistency in developing and processing enforcement actions, and serves as a resource for various FDIC staff as well as a tool for all FDIC-supervised institutions to use to better understand what the agency looks at in issuing enforcement actions.
Section 8(b) of the Federal Depository Institution Act authorizes the FDIC to issue cease-and-desist orders or consent orders when certain situations are factually supported. Specifically, the FDIC may issue a cease-and-desist letter when an institution has engaged, or is about to engage in:
- An unsafe or unsound practice in conducting the business of the institution; or
- A violation of a law and/or regulation, written agreement with the FDIC, or written condition imposed by the FDIC in connection with the granting of any application or other request.
Chapter 4-7 of the Manual generally provides that the FDIC may terminate a cease-and-desist order under any of the following circumstances:
- The institution is in full compliance with all the provisions of the order and has fully corrected the violations of laws and regulations, unsafe and unsound practices, or conditions that led to the issuance of the order;
- Any provisions deemed “not in compliance” have become outdated or irrelevant to the institution’s current circumstances, including situations in which the institution is closed; and
- Deterioration or any provisions deemed “not in compliance” leads to issuance of a new or revised formal action.
The Manual provides specific conditions for termination of other types of formal enforcement actions, such as temporary cease-and-desist orders, and personal cease-and-desist orders against an institution-affiliated party.
The Manual does not provide any procedures for an institution to request termination, but the FDIC notes that there are limited exceptions for when it may be appropriate for an enforcement action to be replaced with a less severe or less comprehensive action. Requests to use these limited exceptions must go to the appropriate Division Direction and the General Counsel and will require consultation with the Chairman. The FDIC notes that use of these limited exceptions will be rare.
The Manual notes that in terminating a cease-and-desist order, the Regional Office should document the justification for the termination. If it is being replaced with a new action, the existing order should remain in effect until the new action is issued and becomes effective.
Although the updates to the Manual focus on formal enforcement actions, the common reasons for terminating informal enforcement actions can be found in Chapter 2. Informal actions include Bank Board Resolutions and Memorandums of Understanding. The conditions for terminating an informal action are similar to those for terminating formal actions but in some cases require a lesser degree of compliance with the provisions of the action. For instance, an informal action may be terminated where an institution is in “significant compliance” with an action versus “full compliance” for a formal action. Termination of an informal action can also occur where an institution merges or closes.
The full Manual is available here.