September 14, 2018

Regulators Confirm Supervisory Guidance Is Not Law

3 min

The federal banking, credit union, and financial services regulators—the Federal Reserve Board (FRB), the Bureau of Consumer Financial Protection (CFPB/BCFP or the Bureau), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC)—issued a joint statement explaining the role of supervisory guidance for regulated institutions. The regulators confirmed that supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance.

"Supervisory guidance" as addressed by the joint statement consists of interagency statements, advisories, bulletins, policy statements, questions and answers, and frequently asked questions to their respective supervised institutions. Such guidance may be initiated by the regulators to set supervisory expectations or priorities and articulate the regulator's general views regarding appropriate practices within a regulated area. Supervisory guidance may also be requested by financial institutions. While regulators may seek public comment on proposed guidance, it is not subject to formal notice and comment requirements.

In addition to the general proposition that supervisory guidance does not have the force and effect of law, the joint statement indicates that the agencies:

  • Intend to limit the use of numerical thresholds or other "bright lines" in describing expectations in supervisory guidance, and treat such test as only exemplary
  • Will not criticize a supervised financial institution for a "violation" of supervisory guidance—the agencies state that any citations issued by the agencies will be for violations of law or regulations, or non-compliance with enforcement orders or other enforceable conditions, rather than supervisory guidance
  • Aim to reduce the issuance of multiple supervisory guidance documents on the same topic
  • Will continue efforts to make the role of supervisory guidance clear in their communications to examiners and to supervised financial institutions, thus continuing to highlight that supervisory guidance does not replace notice and comment rulemaking

Many supervised institutions have cited a blurring of the distinction between supervision and enforcement in recent years, and noted concerns that issues arising from an examination may be escalated to enforcement. The joint statement appears to draw a clearer line between the two regulatory functions, but still leaves some questions. For instance, the CFPB/BCFP has published Supervisory Highlights that summarize issues the Bureau has seen in examinations and provide insight into the Bureau's interpretations of the laws and regulations it applies. While the joint statement is a helpful reminder of the distinction between supervision and enforcement, it does not completely address how to treat supervisory guidance as a reflection of agency positions and interpretations generally. For instance, the joint statement does not address whether and how an institution might rely on compliance with supervisory guidance in the face of a contrary interpretation of a requirement in the enforcement context.

Of course, while the joint statement clarifies that supervisory guidance should not result in enforcement actions, there are a variety of mechanisms within the supervisory process that regulators can use to ensure that their supervisory guidance is followed by the financial institutions. To the extent that supervisory guidance reflects regulators' expectations for appropriate practices, such guidance likely remains highly instructive for institutions.