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US bank regulators at pains to distinguish between their opinions and law

Chris Hamblin, Editor, London, 13 September 2018

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Possibly under pressure from the regulatory outlook of President Trump, five US financial regulators have issued a statement about the non-binding nature of 'supervisory guidance,' i.e. the desires they express that do not appear in rulebooks.

The five bodies are the Federal Reserve Board, the Bureau of Consumer Financial Protection, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency. They issue regulations that generally have the force and effect of law, but their 'supervisory guidance' has no such status and the agencies are - on this occasion at least - claiming that they do not take enforcement action on the basis of it.

The agencies are proclaiming the following in respect of supervisory guidance.

  • They intend to limit their use of numerical thresholds when they describe their expectations of firms' observance of supervisory guidance, always taking pains to say that those thresholds are "exemplary only and not suggestive of requirements."  
  • Their examiners will not criticise any supervised financial institution for a "violation of supervisory guidance." Rather, all citations will be for breaking laws and regulations or failing to obey enforcement orders or other enforceable things.
  • They intend occasionally to ask the public for comment on supervisory guidance, all the while remembering that such guidance is not intended to be a regulation or have the force of law.
  • They will try to reduce the issuance of multiple supervisory guidance documents on the same topic and will generally limit this in future.
  • They are going to make the job of supervisory guidance clear in their communications to examiners and to supervised financial institutions, encouraging firms with questions about this statement or any applicable supervisory guidance to discuss things with their agency contacts.   

Mark Chorazak, a partner at the law firm of Cadwalader, Wickersham & Taft, has commented: "Supervisory guidance has always been an important and controversial part of our regulatory infrastructure. At worst, it is de facto regulation, thrust upon institutions without the notice-and-comment process afforded under the Administrative Procedure Act. In recent years, banking institutions of all sizes and profiles have raised concerns about the mushrooming of guidance and its status as anything but optional."

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