OCC’s Revised Manual Expanding its Discretion to Impose CMPs Takes Effect
On January 1, 2023, the Office of the Comptroller of the Currency’s (OCC) revised Policies and Procedures Manual (PPM 5000-7), for assessing civil money penalties (CMP) on financial institutions, including community banks, was placed into use. PPM 5000-7 replaced the November 13, 2018, version conveyed by OCC Bulletin 2018-41, "OCC Enforcement Actions: OCC Enforcement Action Policies and Procedures Manuals." According to the OCC, this replacement was necessary as “the mitigating factors in the CMP matrix issued under OCC Bulletin 2018-41 did not give banks a sufficiently strong incentive to fully address underlying deficiencies.”
The key revisions made by PPM 5000-7 to the CMP matrix (Matrix) for financial institutions include:
The emergence of new mitigating factors, including:
self-identification – A bank will be considered to have self-identified “when the bank discovers the deficiency or conduct without prompting from a regulatory or law enforcement agency and alerts the OCC to the existence of the conduct or deficiency in a timely manner.” However, a bank’s reporting pursuant to a review prompted by the OCC, another regulatory or law enforcement agency will not be considered self-identification.
OCC Assessment: The OCC will assess the extent of a bank’s self-identification by reviewing the extent of the disclosure, determining if the disclosure is done “in a timely manner,” and considering “the conduct or deficiencies underlying the violations of law or unsafe or unsound practices at issue to the OCC.”
remediation or corrective action – The OCC will review any actions taken by a bank after an incident. The OCC will assess the significance of these actions by considering the timeliness of effectiveness of the Bank’s actions. If the Bank is able to “proactively remediate the root cause of the conduct or deficiency from an operational and risk management standpoint” as well as the “conduct or deficiencies,” the Bank will receive full credit for these actions. A bank’s good faith efforts to do so will be considered in the OCC’s assessment.
restitution – If applicable to the situation, the OCC will consider “the extent to which the bank timely provides complete restitution (as determined by the OCC) to all affected customers.”
An increased weight being assessed to each of the mitigating factors under the Matrix; and
A revised Matrix table titled "Suggested Action Based on Total Matrix Score and Total Assets of Bank" which includes a range of actions that the OCC agent should use as a guide in assessing CMPs, from “No CMP, but consider supervisory letter” to “Consider CMP greater than $175,000[.]”
The OCC’s announcement makes clear that, although the Matrix outlines parameters for assessing banks, it “does not reduce supervisory decision making to a mathematical process” and should be regarded only as a “tool to guide the OCC's decision making in assessing CMPs in specific cases.”