Takeaways from the OCC’s Revised Civil Money Penalty Manual
On November 29, 2022, the Office of the Comptroller of the Currency (OCC) released a revised Policies and Procedures Manual (PPM) for assessing civil money penalties (CMP) that will take effect on January 1, 2023. The purpose of the PPM is to guide OCC staff to assess CMPs in a consistent and equitable manner. The PPM includes a CMP matrix that provides a weighted “scorecard” of factors for OCC staff to consider in assessing a CMP. Factors include the type and duration of any misconduct, intent, harm to the bank, size of the bank, remediation, and restitution. 1 The PPM, therefore, can be an important guide for financial institutions that are considering how to address an identified control deficiency or misconduct in a manner that mitigates against the issuance or amount of a potential CMP. Below we highlight four key takeaways from the revised PPM.
First, with the publication of the revised PPM, the OCC acknowledged that the prior PPM did not sufficiently incentivize banks to address underlying deficiencies. As summarized below, the revised PPM, therefore, includes an expanded explanation on how banks can earn mitigation credit for self-identifying, remediating, and making restitution for control deficiencies and conduct. The credit matrix in the revised PPM also increases the scoring weight of these mitigating factors.
Self-Identification: OCC staff is encouraged to credit a bank that discovers a deficiency or conduct without prompting from a government agency, and alerts the OCC in a timely manner.
- Timeliness is key. The OCC recognizes that the bank may not be able to make a complete disclosure to the OCC until an investigation is conducted. In order to receive full self-identification credit, however, a bank cannot undertake a lengthy investigation before disclosing any deficiency or misconduct.
- The OCC expects the bank to disclose the deficiency or conduct upon discovery.
- To receive full self-identification credit, the bank must proactively further investigate similar deficiencies or conduct in other parts of the bank, as applicable.
- A bank will receive no credit under this factor if it withholds relevant information or intentionally provides incomplete information to the OCC.
Remediation: OCC staff is encouraged to consider the extent to which the bank timely and effectively implemented remedial measures.
- The bank must proactively remediate the root cause of the deficiency or conduct.
- The bank must remediate similar deficiencies or conduct.
- OCC staff is encouraged to consider the totality and circumstances of the bank’s efforts, as well as the extent the bank worked “openly, transparently, and cooperatively in good faith with the OCC to address the conduct or deficiency.”
Restitution: OCC staff is encouraged to consider the extent to which the bank’s affected customers have received restitution from the bank.
- If the bank does not complete meaningful restitution, OCC staff has the discretion to award no mitigation credit for this factor.
- If the restitution falls short of complete, but the bank has completed restitution in accordance with a written OCC “no supervisory objection” or has made adequate attempts to locate and pay restitution to all affected customers but was unable to do so through no fault of its own, the OCC staff has the discretion to award full credit.
Second, the revised PPM provides that the OCC may combine a CMP against an institution with injunctive relief, such as business restrictions, pursuant to 12 U.S.C. § 1818(b)(6). In this regard, the OCC could restrict the growth of an institution; require the disposition of any involved loan or asset; rescind agreements or contracts; require the institution to hire qualified officers or employees; and take any other action determined to be appropriate by the agency.
The guidance provides that such coupled relief may be appropriate when, for example, an institution has failed to make effective or sustainable progress on corrective actions despite a prior enforcement action or CMP assessment, or has widespread or systemic deficiencies. The guidance recognizes that the combined impact of the CMP and injunctive relief may be considered when determining the CMP amount.
Third, the revised PPM seeks to allow for further differentiation of CMP amounts among institution size, and the OCC has revised the asset size of banks on its CMP matrix accordingly. Importantly, the PPM instructs OCC staff to consider a bank’s ability to pay a CMP amount suggested by the CMP matrix before recommending to assess a CMP.
Fourth, the revised PPM reinforces the OCC’s authority to bring administrative enforcement actions—including CMPs—against bank service companies, third-party service providers, and independent contractors that are not employed by a bank, such as outside attorneys, accountants, and appraisers.
The text of the revised PPM can be found here.
The revised PPM underscores that when a deficiency or misconduct is identified, a financial institution’s best course of action is to promptly disclose and remediate the issue. Financial institutions seeking assistance in responding to issues that may give rise to a regulatory enforcement investigation—or are currently responding to an enforcement investigation—should feel free to contact any author of this advisory or their regular Arnold & Porter contact.
© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.