The U.S. Office of the Comptroller of the Currency (OCC) along with the Federal Deposit Insurance Corporation (FDIC) jointly issued a final rule that codifies the elimination of reputation risk from their supervisory programs.
The final rule defines “reputation risk” and prohibits the agencies from criticizing or taking adverse action against an institution on the basis of reputation risk.
Further, the rule prohibits the FDIC and OCC from requiring, instructing, or encouraging an institution to close customer accounts or take other actions on the basis of a person or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk.
In addition, the rule addresses concerns expressed in executive order 14331, Guaranteeing Fair Banking for All Americans. That executive order states that the use of reputation risk can be a pretext for restricting law-abiding individuals’ and businesses’ access to financial services on the basis of political or religious beliefs or lawful business activities.
“Today’s final rule is another step toward reducing the opportunities for regulatory abuse by removing reputation risk as a basis for government action,” Comptroller of the Currency Jonathan Gould said.
“Reputation risk is not a sound basis for supervision. Regulators and banks have too often used it as a pretext for decisions that have nothing to do with safety and soundness, financial risk, or even BSA/AML compliance. The result, in too many cases, has been lawful businesses and individuals denied access to banking services,” he said. “Supervisory action should be grounded in less subjective measures. This rule, together with other actions we are taking, helps move us in that direction.”
Gould added that the OCC’s work is not done with regard to meeting the objectives of the executive order.
“Although we have made significant progress in our review of the alleged debanking actions of the largest national banks, we continue to delve into the details of specific complaints and policy choices. Our collective efforts under the EO should shine a spotlight on the actions of agencies and certain banks, bringing accountability and ensuring that neither we nor banks restrict access to financial services on the basis of political or religious beliefs or lawful business activities,” Gould said.