Agencies formally propose rule to weaken role of guidance

WASHINGTON — Five financial regulators issued a proposed rulemaking to weaken the authority of supervisory guidance, codifying an announcement from 2018 that declared that guidance does not carry the force of law.

Thursday’s rulemaking, previewed at a Federal Deposit Insurance Corp. board meeting earlier this month, was issued by the Federal Reserve, Consumer Financial Protection Bureau, FDIC, National Credit Union Administration and the Office of the Comptroller of the Currency.

“Unlike a law or regulation, supervisory guidance does not have the force and effect of law and the agencies do not take enforcement actions or issue supervisory criticisms based on non-compliance with supervisory guidance,” the agencies said in a joint press release. “Rather, supervisory guidance outlines supervisory expectations and priorities, or articulates views regarding appropriate practices for a given subject area.”

The regulation builds off guidance from early in the Trump administration, when financial regulators first announced that supervisory guidance does not carry the force of law in the same way that a rulemaking does.

The more formal rulemaking proposal, with public feedback due 60 days after being published in the Federal Register, codifies that position and addresses some lingering concerns from the banking industry.

Shortly after the so-called guidance on guidance was published, the American Bankers Association and the Bank Policy Institute wrote a joint petition requesting that the policy eventually be solidified via rulemaking, as well as clarifying that certain bank rating downgrades and penalties — such as matters requiring attention, or MRAs — would only be affected by violations of regulation and not guidance.

Thursday’s filing from the five financial regulators acknowledges the petition and its concerns from the ABA and the Bank Policy Institute several times, writing that “the agencies reiterate that examiners will not base supervisory criticisms on a ‘violation’ of or ‘non-compliance with’ supervisory guidance.”

Regulators also stressed the value of guidance in certain instances, writing that “in some situations, examiners may reference (including in writing) supervisory guidance to provide examples of safe and sound conduct, appropriate consumer protection and risk management practices, and other actions for addressing compliance with laws or regulations.”