OCC Issues New Guidelines for Civil Money Penalty Assessments
On February 26, 2016, the Office of the Comptroller of the Currency (the "OCC") revised its Policies and Procedures Manual ("PPM") for assessing civil money penalties ("CMP"). This revision supersedes and replaces all prior CMP policies.
By statute, the OCC is authorized to assess CMPs for violations of laws, regulations, conditions imposed in writing, unsafe and unsound practices, or breaches of fiduciary duty. The OCC's stated purpose is for the assessment of a CMP to act as a deterrent to future violations and to encourage correction of violations, while emphasizing accountability. The OCC may assess CMPs against institutions or institution-affiliated parties ("IAP"). Institutions include national banks, federal savings associations, federal branches and agencies, and bank service companies; whereas IAPs include directors, officers, employees, controlling shareholders, consultants, joint venture partners, persons required to file a change-in-control notice, and independent contractors under certain circumstances, such as attorneys and accountants.
The OCC's CMP policy provides a tool for examiners to assess and quantify the degree of severity of violations through the use of a CMP matrix. Specifically, where a violation occurs, examiners are to assess the severity of the violation by using a CMP matrix that takes into account eleven (11) factors and three (3) mitigating factors. These factors are then assigned a numerical designation based upon differing weight factors. The CMP matrix is used only as guidance and examiners are not to reduce the CMP process to a mathematical equation or use the matrix as a substitute for sound supervisory judgment.
Revised CMP Policy
The revisions to the existing policy are subtle and amend the OCC's CMP policy in the following ways:
Prior to the revisions, the OCC's CMP policy used a single matrix for both institutions and IAPs. The revised CMP policy creates two matrixes to be used separately in assessing the severity of a violation for both institutions ("Institution Matrix") and IAPs ("IAP Matrix").
Under the Institution Matrix, there are three notable changes. First, the OCC has adjusted the various weights given to the eleven (11) factors used to assess a violation. For instance, the OCC has increased the weight factor for violations that: (1) were carried out with intent; (2) were continued after OCC notification; and (3) were similar to prior violations that subjected the institution to administrative action or enforcement. Second, the Institution Matrix adds as a new factor the "effectiveness of internal controls and compliance program." This addition reflects the ongoing OCC emphasis on the maintenance of risk management processes. Third, the Institution Matrix adds Bank Secrecy Act ("BSA") violations to the "loss or harm to consumer" factor.
Under the IAP Matrix, there are also three notable changes. First, just as in the Institution Matrix, the OCC has adjusted the various weight given to the eleven (11) factors. Specifically, the OCC has increased the weight given to violations carried out with: (1) intent; and (2) financial gain or other benefit received by the IAP as a result of the violation. Second, the IAP Matrix adds as a new factor the "IAP responsibility for internal controls and its effectiveness." Third, the IAP Matrix includes as a factor the number of instances of misconduct and as well the time period in which the violations occurred.
Each matric has its own Suggested Action Table ("Table"). Importantly, under both matrixes the examiner must take into account the institution's or IAP's ability to pay. The Tables show this revision in two ways. First, under the Institution Table, the ability to pay is measured against the asset size of the institution, not its capital strength. Second, the IAP Table provides for significantly lower CMPs against individuals as opposed to institutions.
What does this mean for my Bank?
These changes in the PPM are subtle. The OCC is only reinforcing what it has always emphasized in that the "intent" of the institution or IAP is perhaps the most important factor in the CMP assessment decision. The revised PPM reflects that emphasis by directing the examiners to determine whether there were appropriate systems in place to prevent the violation and by increasing the weight of factors that may demonstrate intent. By way of an example, the OCC may not be able to show a clear intent in every instance. However, the existence of repeated violations after notice, financial gain received as a result of a violation, or a party that had previously been subject to administrative enforcement for similar violations tend to show that the violation was carried out knowingly or in reckless disregard of the law.
To view a full text of the OCC Bulletin 2016-5, click here.