Don’t Confuse Clarity with Forgiveness

In an effort to improve communication between the OCC and bank boards and management, the agency will begin labeling violations of laws and regulations as “new,” “self-identified,” or “repeat” when communicating a violation to banks starting July 1, according to the agency.

The change is part of an updated guidance, OCC Bulletin 2017-18 released on May 23. It’s the result of recommendations from a 2013 International Peer Review report and subsequent analysis by the agency. It builds on OCC Bulletin 2014-52.

Let’s take a look at what will be communicated:

Reporting substantive violations

The guidance says that substantive violations should be communicated in a report of examination or supervisory letter. This can include substantive self-reported violations. Examiners have discretion in deciding whether less substantive violations should be communicated in a separate discretion.

First-time violations

The new, self-identified and repeat labels apply the first time an examiner reports a violation. Violations can include multiple labels, including:

• New. The violation or a similar one hasn’t been communicated in writing by the OCC in the past five years.
• Self-identified. The board and management have identified the violation, documented it and told the OCC about it.
• Repeat. The violation or a similar has been communicated in writing by the OCC sometime during the last five years. These can include self-identified violations.

Violation follow-up

After a follow-up activity, the OCC will update the status of the violation. Labels include:

• Past due. The bank didn’t implement expected corrective actions, or they weren’t effective.
• Pending validation. The bank implemented corrective action, but they haven’t been in place long enough to demonstrate whether they are effective or more testing is needed.
• Closed. The violation has been corrected, or it’s not correctable.

While clearer communication is always a good thing, banks shouldn’t confuse clarity with forgiveness. It’s just important as ever to carefully document and track exam and audit findings and to work collaboratively across your institution to resolve them. Nothing can fall through the cracks because I can guarantee you that examiners won’t forget.

As the bulletin spells out, “The OCC expects the board and management to take timely and effective correction of all violations regardless of how they are communicated. If management fails to correct a violation previously communicated in a separate written document by the OCC, the examiner should include the violation in the next ROE or supervisory letter.”