2017-22723. Agency Information Collection Activities: Information Collection Renewal; Comment Request; OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured ...

AGENCY:

Office of the Comptroller of the Currency (OCC), Treasury.

ACTION:

Notice and request for comment.

SUMMARY:

The OCC, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on a continuing information collection, as required by the Paperwork Reduction Act of 1995 (PRA).

In accordance with the requirements of the PRA, the OCC may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number.

The OCC is finalizing the renewal of its information collection titled, “OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches.” The OCC is also giving notice that it has sent the collection to OMB for review.

DATES:

Comments must be submitted on or before November 20, 2017.

ADDRESSES:

Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments by email, if possible. Comments may be sent to: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, Attention: 1557-0321, 400 7th Street SW., Suite 3E-218, Washington, DC 20219. In addition, comments may be sent by fax to [phone] or by electronic mail to [e-mail]. You may personally inspect and photocopy comments at the OCC, 400 7th Street SW., Washington, DC 20219. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling [phone] or, for persons who are deaf or hearing impaired, TTY, [phone]. Upon arrival, visitors will be required to present valid government-issued photo identification and submit to security screening in order to inspect and photocopy comments.

All comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.

Additionally, please send a copy of your comments by mail to: OCC Desk Officer, 1557-0319, U.S. Office of Management and Budget, 725 17th Street NW., #10235, Washington, DC 20503, or by email to: [e-mail].

FOR FURTHER INFORMATION CONTACT:

Shaquita Merritt, OCC Clearance Officer, [phone] or, for persons who are deaf or hearing impaired, TTY, [phone], Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street SW., Suite 3E-218, Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Under the PRA (44 U.S.C. 3501-3520), Federal agencies must obtain approval from OMB for each collection of information that they conduct or sponsor. “Collection of information” is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) to include agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of title 44 requires Federal agencies to provide a 60-day notice in the Federal Register concerning each proposed collection of information, including each proposed extension of an existing collection of information, before submitting the collection to OMB for approval. To comply with this requirement, the OCC is publishing notice of the proposed collection of information set forth in this document.

Title: OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches.

OMB Control No.: 1557-0321.

Description: The OCC's guidelines codified in 12 CFR part 30, appendix D establish minimum standards for the design and implementation of a risk governance framework for insured national banks, insured Federal savings associations, and insured Federal branches of a foreign bank (bank). The guidelines apply to a bank with average total consolidated assets: (i) Equal to or greater than $50 billion; (ii) less than $50 billion if that bank's parent company controls at least one insured national bank or insured Federal savings association that has average total consolidated assets of $50 billion or greater; or (iii) less than $50 billion, if the OCC determines such bank's operations are highly complex or otherwise present a heightened risk as to warrant the application of the guidelines (covered banks). The guidelines also establish minimum standards for a board of directors in overseeing the framework's design and implementation. These guidelines were finalized on September 11, 2014.^[1] The OCC proposed renewing the information collection associated with the guidelines on July 5, 2017.^[2] The OCC is now seeking OMB approval to renew the information collection associated with these guidelines.

The standards contained in the guidelines are enforceable under section 39 of the Federal Deposit Insurance Act (FDIA),^[3] which authorizes the OCC to prescribe operational and managerial standards for insured national banks, insured Federal savings associations, and insured Federal branches of a foreign bank.

The guidelines formalize the OCC's heightened expectations program. They also further the goal of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ^[4] to strengthen the financial system by focusing management and boards of directors on improving and strengthening risk management practices and governance, thereby minimizing the probability and impact of future financial crises.

The standards for the design and implementation of the risk governance framework, which contain collections of information, are as follows:

Standards for Risk Governance Framework

Covered banks should establish and adhere to a formal, written risk governance framework designed by independent risk management. It should include delegations of authority from the board of directors to management committees and executive officers as well as risk limits established for material activities. It should be approved by the board of directors or the board's risk committee and reviewed and updated at least annually by independent risk management.

Front Line Units

Front line units should take responsibility and be held accountable by the Chief Executive Officer (CEO) and the board of directors for appropriately assessing and effectively managing all of the risks associated with their activities. In fulfilling this responsibility, each front line unit should, either alone or in conjunction with another organizational unit that has the purpose of assisting a front line unit: (i) Assess, on an ongoing basis, the material risks associated with its activities and use such risk assessments as the basis for fulfilling its responsibilities and for determining if actions need to be taken to strengthen risk management or reduce risk given changes in the unit's risk profile or other conditions; (ii) establish and adhere to a set of written policies that include front line unit risk limits (such policies should ensure risks associated with the front line unit's activities are effectively identified, measured, monitored, and controlled, consistent with the covered bank's risk appetite statement, concentration risk limits, and all policies established within the risk governance framework); (iii) establish and adhere to procedures and processes, as necessary to maintain compliance with the policies described in (ii); (iv) adhere to all applicable policies, procedures, and processes established by independent risk management; (v) develop, attract, and retain talent and maintain staffing levels required to carry out the unit's role and responsibilities effectively; (vi) establish and adhere to talent management processes; and (vii) establish and adhere to compensation and performance management programs.

Independent Risk Management

Independent risk management should oversee the covered bank's risk-taking activities and assess risks and issues independent of the front line units by: (i) Designing a comprehensive written risk governance framework commensurate with the size, complexity, and risk profile of the covered bank; (ii) identifying and assessing, on an ongoing basis, the covered bank's material aggregate risks and using such risk assessments as the basis for fulfilling its responsibilities and for determining if actions need to be taken to strengthen risk management or reduce risk given changes in the covered bank's risk profile or other conditions; (iii) establishing and adhering to enterprise policies that include concentration risk limits; (iv) establishing and adhering to procedures and processes to ensure compliance with policies in (iii); (v) identifying and communicating to the CEO and board of directors or board's risk committee material risks and significant instances where independent risk management's assessment of risk differs from that of a front line unit, and significant instances where a front line unit is not adhering to the risk governance framework; (vi) identifying and communicating to the board of directors or the board's risk committee material risks and significant instances where independent risk management's assessment of risk differs from the CEO, and significant instances where the CEO is not adhering to, or holding front line units accountable for adhering to, the risk governance framework; and (vii) developing, attracting, and retaining talent and maintaining staffing levels required to carry out the unit's role and responsibilities effectively while establishing and adhering to talent management processes and compensation and performance management programs.

Internal Audit

Internal audit should ensure that the covered bank's risk governance framework complies with the Guidelines and is appropriate for the size, complexity, and risk profile of the covered bank. It should maintain a complete and current inventory of all of the covered bank's material processes, product lines, services, and functions, and assess the risks, including emerging risks, associated with each, which collectively provide a basis for the audit plan. It should establish and adhere to an audit plan, which is periodically reviewed and updated, that takes into account the covered bank's risk profile, emerging risks, issues, and establishes the frequency with which activities should be audited. The audit plan should require internal audit to evaluate the adequacy of and compliance with policies, procedures, and processes established by front line units and independent risk management under the risk governance framework. Significant changes to the audit plan should be communicated to the board's audit committee. Internal audit should report in writing, conclusions and material issues and recommendations from audit work carried out under the audit plan to the board's audit committee. Reports should identify the root cause of any material issues and include: (i) A determination of whether the root cause creates an issue that has an impact on one organizational unit or multiple organizational units within the covered bank; and (ii) a determination of the effectiveness of front line units and independent risk management in identifying and resolving issues in a timely manner. Internal audit should establish and adhere to processes for independently assessing the design and ongoing effectiveness of the risk governance framework on at least an annual basis. The independent assessment should include a conclusion on the covered bank's compliance with the standards set forth in the Guidelines. Internal audit should identify and communicate to the board's audit committee significant instances where front line units or independent risk management are not adhering to the risk governance framework. Internal audit should establish a quality assurance program that ensures internal audit's policies, procedures, and processes comply with applicable regulatory and industry guidance, are appropriate for the size, complexity, and risk profile of the covered bank, are updated to reflect changes to internal and external risk factors, emerging risks, and improvements in industry internal audit practices, and are consistently followed. Internal audit should develop, attract, and retain talent and maintain staffing levels required to effectively carry out its role and responsibilities. Internal audit should establish and adhere to talent management processes and compensation and performance management programs that comply with the guidelines.

Strategic Plan

The CEO, with input from front line units, independent risk management, and internal audit, should be responsible for the development of a written strategic plan that should cover, at a minimum, a three-year period. The board of directors should evaluate and approve the plan and monitor management's efforts to implement the strategic plan at least annually. The plan should include a comprehensive assessment of risks that impact the covered bank, an overall mission statement and strategic objectives, an explanation of how the covered bank will update the risk governance framework to account for changes to its risk profile projected under the strategic plan, and be reviewed, updated, and approved due to changes in the covered bank's risk profile or operating environment that were not contemplated when the plan was developed.

Risk Appetite Statement

A covered bank should have a comprehensive written statement that articulates its risk appetite that serves as the basis for the risk governance framework. It should contain qualitative components that describe a safe and sound risk culture and how the covered bank will assess and accept risks and quantitative limits that include sound stress testing processes and address earnings, capital, and liquidity.

Risk Limit Breaches

A covered bank should establish and adhere to processes that require front line units and independent risk management to: (i) Identify breaches of the risk appetite statement, concentration risk limits, and front line unit risk limits; (ii) distinguish breaches based on the severity of their impact; (iii) establish protocols for disseminating information regarding a breach; (iv) provide a written description of the breach resolution; and (v) establish accountability for reporting and resolving breaches.

Concentration Risk Management

The risk governance framework should include policies and supporting processes appropriate for the covered bank's size, complexity, and risk profile for effectively identifying, measuring, monitoring, and controlling the covered bank's concentrations of risk.

Risk Data Aggregation and Reporting

The risk governance framework should include a set of policies, supported by appropriate procedures and processes, designed to provide risk data aggregation and reporting capabilities appropriate for the covered bank's size, complexity, and risk profile and to support supervisory reporting requirements. Collectively, these policies, procedures, and processes should provide for: (i) The design, implementation, and maintenance of a data architecture and information technology infrastructure that support the covered bank's risk aggregation and reporting needs during normal times and during times of stress; (ii) the capturing and aggregating of risk data and reporting of material risks, concentrations, and emerging risks in a timely manner to the board of directors and the OCC; and (iii) the distribution of risk reports to all relevant parties at a frequency that meets their needs for decision-making purposes.

Talent and Compensation Management

A covered bank should establish and adhere to processes for talent development, recruitment, and succession planning. The board of directors or appropriate committee should review and approve a written talent management program. A covered bank should also establish and adhere to compensation and performance management programs that comply with any applicable statute or regulation.

Board of Directors Training and Evaluation

The board of directors of a covered bank should establish and adhere to a formal, ongoing training program for all directors. The board of directors should also conduct an annual self-assessment.

Response to Comments

The OCC received one comment from an individual in response to the proposed renewal. The commenter suggested that the OCC rescind and not renew the information collection associated with appendix D of 12 CFR part 30 for a number of reasons.

The commenter suggested that almost one half of the banks subject to appendix D have total assets that are significantly less than $50 billion but the narrative surrounding “heightened standards” leads the public to believe that the guidelines are only applicable to the largest banks or banks that are highly complex or present a heightened risk. Appendix D applies to 34 OCC-supervised banks.^[5] Ten of these 34 banks have less than $50 billion in average total consolidated assets. Appendix D applies to banks with less than $50 billion in average total consolidated assets if a bank's parent company controls at least one other bank with average total consolidated assets equal to or greater than $50 billion or if the OCC determines such bank's operations are highly complex or otherwise present a heightened risk as to warrant the application of appendix D. Of the 10 banks covered by appendix D that have less than $50 billion in average total consolidated assets, eight are covered because their parent companies control another bank with average total consolidated assets equal to or greater than $50 billion.^[6] One of the two remaining banks is a covered bank because the OCC exercised its reservation of authority to apply appendix D to the bank.^[7] The other remaining bank is covered because that bank previously had average total consolidated assets equal to or greater than $50 billion. Appendix D applies to a bank with less than $50 billion in average total consolidated assets when that bank's parent company controls at least one bank with average total consolidated assets equal to or greater than $50 billion because, in some instances, the OCC has observed that a covered bank's parent company does not pay sufficient attention to the operations of these smaller entities in a holding company structure. Appendix D covers these entities because the OCC believes that a covered bank's parent company should devote adequate attention to assessing and managing the risk associated with these entities' activities. These smaller covered banks are affiliates of large banking organizations, which should have the compliance resources to cover all of their bank charters.

The commenter also indicated that the OCC's annual burden estimate for appendix D was excessive, particularly for institutions that have less than $10 billion in total assets and that appendix D should be rescinded and revised to reduce the excessive costs. As discussed above, appendix D applies primarily to larger banks. The only covered banks that have less than $10 billion in average total consolidated assets are covered banks because their parent companies control another bank with average total consolidated assets equal to or greater than $50 billion. The OCC believes that the burden estimate is reasonable and that it is appropriate for these banks to devote sufficient resources to risk governance and the standards necessary to manage and control risk-taking activities. The burden on these smaller covered banks is not excessive because they have the resources of a larger affiliate bank to rely on. Also, while the commenter recommended that the OCC rescind appendix D, the OCC cannot rescind regulations or guidelines through the PRA renewal process.

The commenter also stated that the collection of information for appendix D is unnecessary and of little utility because appendix D has been ineffectual in fostering enterprise risk governance over large complex financial institutions since almost seven years after the introduction of the OCC's “heightened expectations” and three years after the issuance of appendix D, the OCC continues to identify enterprise risk governance as a key risk facing large banks in the OCC's spring 2017 Semiannual Risk Perspective.^[8] However, while appendix D is intended to promote enterprise risk governance, the OCC recognizes that appendix D cannot eliminate the possibility of all enterprise risk governance weaknesses. The OCC believes that appendix D is a valuable mechanism for promoting sound enterprise risk governance and has observed significant improvement in risk governance since the adoption of appendix D. However, we also realize that risk governance weaknesses may remain and can be a risk to the safety and soundness of banks.

The commenter also indicated that there is a disconnect between the specific risks identified in the OCC's Semiannual Risk Perspectives and the “abstract generalized” standards in appendix D. According to the commenter, appendix D does not provide standards addressing the specific risks identified in the Semiannual Risk Perspectives, such as cyber security and Bank Secrecy Act (BSA) and Anti-Money Laundering risks (AML). The standards in appendix D are not intended to exhaustively address all of the risks facing OCC-regulated banks. Indeed, there is a separate appendix to 12 CFR part 30, appendix B that contains standards addressing information security. Banks are also subject to separate BSA and AML requirements.^[9]

The commenter also expressed the opinion that the standards in appendix D are not actually heightened or more robust than the standards the OCC applies to many banks with $1 billion or more in total assets and that the reality is the OCC applies the standards in appendix D to many midsize and community banks. The commenter pointed specifically to the Comptroller's Handbook on Corporate and Risk Governance (handbook), suggesting that OCC examiners use this handbook for all OCC supervised banks.^[10] Appendix D only applies to banks with average total consolidated assets equal to or greater than $50 billion, banks with average total consolidated assets less than $50 billion when a bank's parent company controls at least one other bank with average total consolidated assets equal to or greater than $50 billion, and banks with average total consolidated assets less than $50 billion if the OCC determines that a bank's operations are highly complex or otherwise present a heightened risk. The handbook referenced by the commenter specifically notes that only banks with average total consolidated assets of $50 billion or greater (or banks that are otherwise included as covered banks in appendix D) should adhere to the standards in appendix D. The handbook includes separate and specific criteria for the covered banks subject to appendix D. Appendix D contains various standards that are not applied to smaller banks. For example, appendix D specifically provides that at least two members of a covered bank's board of directors should qualify as independent and provides that boards should establish and adhere to a formal, ongoing training program. Appendix D also imposes specific requirements on covered banks' independent risk management that are not applied to all OCC-regulated banks, including requiring that banks covered by appendix D have written risk appetite statements that include quantitative limits. Additionally, the standards in appendix D are legally different than the standards contained in the handbook. The standards in Appendix D are legally enforceable standards adopted pursuant to section 39 of the FDIA while the handbook is a guidance document.

Type of Review: Regular review.

Affected Public: Businesses or other for-profit.

Estimated Number of Respondents: 34.

Estimated Burden per Respondent: 3,776 hours.

Estimated Total Annual Burden: 128,384 hours.

Comments: Comments continue to be invited on:

(a) Whether the collection of information is necessary for the proper performance of the functions of the OCC, including whether the information has practical utility;

(b) The accuracy of the OCC's estimate of the burden of the information collection;

(c) Ways to enhance the quality, utility, and clarity of the information to be collected;

(d) Ways to minimize the burden of the collection on respondents, including through the use of automated collection techniques or other forms of information technology; and

(e) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

Dated: October 16, 2017.

Karen Solomon,

Deputy Chief Counsel, Office of the Comptroller of the Currency.

Footnotes

1.  79 FR 51518.

2.  82 FR 31151.

3.  12 U.S.C. 1831p-1. Section 39 was enacted as part of the Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law 102-242, section 132(a), 105 Stat. 2236, 2267-70 (Dec. 19, 1991).

4.  Public Law 111-203, 124 Stat. 1376 (2010).

5.  In the July 5, 2017, Federal Register notice proposing a renewal of the information collection associated with appendix D to 12 CFR part 30, the OCC calculated that 41 OCC-supervised entities were subject to appendix D. The calculation has been updated. This reduced number of respondents is due in part to the fact that certain large banking organizations have consolidated the number of bank charters within their holding company structure.

6.  The commenter requested that the OCC disclose the number of banks with less than $10 billion in total assets that are subject to appendix D. There are five covered banks with average total consolidated assets less than $10 billion, all of which are covered banks because their parent companies control another bank with average total consolidated assets equal to or greater than $50 billion.

7.  https://www.occ.gov/​news-issuances/​news-releases/​2015/​nr-occ-2015-105a.pdf.

8.  https://www.occ.gov/​publications/​publications-by-type/​other-publications-reports/​semiannual-risk-perspective/​semiannual-risk-perspective-spring-2017.pdf.

9.  See 12 CFR part 21.

10.  https://www.occ.treas.gov/​publications/​publications-by-type/​comptrollers-handbook/​corporate-risk-governance/​pub-ch-corporate-risk.pdf