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Federal Regulators Finalize Rule on Supervisory Guidance; Summary of NDAA BSA/AML Changes Available

Some may recall that in September 2018 federal regulators, including NCUA and the CFPB, issued an interagency statement on the role of supervisory guidance. Regulators reaffirmed this statement in April 2019 and ultimately issued a joint proposed rulemaking to formalize this guidance in October 2020 (as detailed in this past blog post). As a change in administration approached, regulators finalized multiple rulemakings and this proposal made the list. The rule would add Subpart D to Part 791 of NCUA’s regulations, with most of the provisions in new Appendix A.

As a starting point, the Biden administration already issued a memo to hold pending regulations until new appointees have reviewed them. The memo also ordered that certain rules that have not yet published in the Federal Register be withdrawn until reviewed and approved by Biden appointees. This rule has not yet published, so it seems it may be held up pending action by the new administration.

But based on its current content, what does this rule mean for credit unions? The final rule largely tracks the joint letter issued in 2018 indicating that supervisory guidance does not have the same weight as laws or regulations but this does not mean supervisory guidance can just be ignored.

The preamble to the rule notes that it is not feasible to codify all unsafe or unsound practices, and such an approach could have unintended consequences like stifling innovation so guidance can help address concerns and promote consistency. The rule says in part that NCUA will not take enforcement action based on supervisory guidance. NCUA explained in the preamble the role guidance would be expected to play in exams:

“…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.”

This indicates credit unions can continue to expect examiners to rely on supervisory guidance in its evaluation of a credit union’s operations.

In response to the proposal, some commenters noted that this is a rather fine line, distinguishing between basing an exam criticism on guidance versus pointing to guidance when issuing a criticism in an exam report. NCUA indicated this rule is limited to the role of guidance, rather than the “standards for supervisory criticisms” so it remains to be seen to what extent, if any, the agency may clarify the impact of this rule on the supervisory process. Because this is a joint rule, there are multiple references to “matters requiring attention,” which is used by federal banking regulators in a similar manner as DORs. It is possible this means supervisory guidance can be expected to inform examiners’ findings during exams, but not more formal actions. Overall, it seems credit unions can expect regulatory guidance to continue to be a tool that examiners would use to assess safety and soundness and finalize exam reports.

The rule goes on to state that supervisory guidance should not include numerical thresholds or other “bright-line” type standards, other than as examples, as such specifics are more appropriate for the formal rulemaking process. The agency also committed to avoiding, where possible, issuing multiple guidance documents on the same topic. On the CFPB side, this rule will be found in Part 1074 and Appendix A to that part.

Summary of the NDAA’s BSA/AML Changes. As we blogged about several weeks ago, the National Defense Authorization Act (NDAA) made some amendments that impact the Bank Secrecy Act/anti-money laundering (BSA/AML) framework. NAFCU has created a chart summarizing key provisions, which can be found here.

About the Author

Brandy Bruyere, NCCO, Vice President of Regulatory Compliance, NAFCU

Brandy Bruyere, NCCO, Vice President of Regulatory ComplianceBrandy Bruyere, NCCO was named vice president of regulatory compliance in February 2017. In her role, Bruyere oversees NAFCU's regulatory compliance team who help credit unions with a variety of compliance issues. She also writes articles for NAFCU publications, such as the NAFCU Compliance Blog.

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