Transparent Horizons: OCC issues new Civil Monetary Penalties manual

First, an explanation of the post title: Transparent Horizons ransparent Horizons is the name of a Louise Nevelson sculpture that lived (and, as far as I know, still lives) between the 2 buildings that make up MIT’s East Campus dormitory. The students, at least back in my day, absolutely hated it for what we perceived as its ugliness (note: I am not a Nevelson fan, and this is not among my “favorites” regardless). When I lived there, we always tried to bury it in snow – but people have resorted to more drastic measures, like blowtorches.

Now, to the actual news item: The US Office of the Comptroller of the Currency (OCC) has issued a revised Policies and Procedures Manual (PMM) about its procedures for assessing Civil Monetary Penalties (CMP) on both the national banks it supervises and on “institution-affiliated parties” (IAP), which is a fancy way of saying “people.” What is notable is its transparency – in some respects, it is more detailed an quantitative than even OFAC’s Enforcement Guidelines. For banks and IAPS, there are separate pairs of tables of the factors considered n making a decision, including the relative weight of each factor and what level of each factor would generate a specific score. There are separate sections, as one can imagine, for aggravating factors and mitigating factors in the table that calculates a score for the severity of the underlying conduct. The second table then determines the appropriate response for each range of scores. For this second table for banks, the response is tiered according to the total assets of the firm. 

Here is the OCC policy statement on CMPs:

A CMP may serve as a deterrent to future violations of law, regulation, orders, conditions imposed in writing, and written agreements, as well as certain unsafe or unsound practices and breaches of fiduciary duty, both by the IAP or institution against which the CMP is assessed and by other IAPs and institutions. A CMP can also encourage correction of violations, unsafe or unsound practices, and breaches of fiduciary duty. A CMP against an IAP emphasizes the accountability of individuals. The OCC may use its CMP authority as deemed appropriate to achieve these objectives. This action may be independent or used in conjunction with other supervisory or enforcement actions. CMPs must be supported by adequate and thorough documentation.

The OCC classifies CMPs into 3 tiers:

 

Tier 1

The OCC may assess tier 1 CMPs against an institution or IAP that engages in violations of any

  • law or regulation,

  • final or temporary order,

  • condition imposed in writing in connection with the grant of any application or other request

    by the institution, or

  • written agreement.

    Tier 2

    The OCC may assess tier 2 CMPs against an institution or IAP that engages in

  • violations of law, regulation, orders, conditions imposed in writing, or written agreements,

  • reckless unsafe or unsound practices, or

  • breaches of fiduciary duty,

    which
    are part of a pattern of misconduct,
    cause or are likely to cause more than a minimal loss to the institution, or
    result in a pecuniary gain to the party engaged in the violation, practice, or breach. 

 Tier 3

The OCC may assess tier 3 CMPs against an institution or IAP that knowingly engages in

  • violations of law, regulation, orders, conditions imposed in writing, or written agreements,

  • unsafe or unsound practices, or

  • breaches of fiduciary duty,

    which knowingly or recklessly cause

    • substantial loss to the institution, or

substantial gain to the party engaged in the violation, practice, or breach. 

In addition to a lengthy section on the review process that goes into meting out a CMP (or leading to a settlement), there is this about publicity of OCC enforcement actions: 

At the conclusion of all CMP cases that are resolved through a negotiated settlement, the district counsel, in delegated cases, and E&C, in nondelegated cases, forward a signed copy of the final stipulation and consent order to the Communications Division in Headquarters for publication in the monthly listing of enforcement actions. In certain cases, a news release is issued. Such publicity may serve as a deterrent to future violations, unsafe or unsound practices, and breaches of fiduciary duty. News releases require the approval of the Senior Deputy Comptroller for Midsize and Community Bank Supervision or for Large Bank Supervision, as appropriate, and should also be reviewed by the Comptroller’s office. The district counsel, in delegated actions, and E&C, in nondelegated actions, work directly with the supervisory office and the Press Relations office in preparing news releases. 

While the matrix that helps you calculate the score doesn’t cut and paste well, the one explaining the enforcement actions does – here’s the one for banks:

Total matrix score

Total assets up to
$50 million

Total assets $50 million+ to $250 million

Total assets $250 million+ to $1 billion

Total assets $1 billion+ to $5 billion

Total assets $5 billion+ to $25 billion

Total assets $25 billion+ to $100 billion

Total assets over $100 billion

page10image21632 page10image22056

0–40

page10image23144 page10image23568

page10image24040

No CMP

page10image25008

No CMP

No CMP

No CMP

No CMP

page10image30920

No CMP

page10image32208

No CMP

41–70

Up to $10,000

Up to $20,000

Up to $100,000

Up to $300,000

Up to $1.5 million

Up to $5 million

Up to $15 million

71–100

page10image43056 page10image43480

Up to $25,000

page10image45064

Up to $50,000

page10image47120

Up to $250,000

page10image48704

Up to $1 million

Up to $5 million

page10image51312

Up to $15 million

page10image53104

Up to $30 million

101–130

Up to $50,000

Up to $100,000

Up to $500,000

Up to $2 million

Up to $10 million

Up to $30 million

Up to $60 million

131–160

Up to $100,000

Up to $200,000

page10image68240

Up to $1 million

page10image69392

page10image69864

Up to $4 million

page10image71016

Up to $20 million

page10image72472

Up to $75 million

page10image73944

Up to $150 million

161+

$100,000+ but less than
1 percent of total assets

$200,000+ but less than 1 percent of total assets

$1 million+ but less than 1 percent of total assets

$4 million+ but less than 1 percent of total assets

$20 million+ but less than 1 percent of total assets

$75 million+ but less than 1 percent of total assets

$150 million+ but less than 1 percent of total assets

And here’s the one for IAPs:

 

Total matrix score

Suggested action

0–40

No CMP, but consider supervisory letter

41–50

Consider reprimand or CMP up to $5,000

51–60

Consider CMP greater than $5,000 up to $15,000

61–80

Consider CMP greater than $15,000 up to $35,000

81–100

Consider CMP greater than $35,000 up to $100,000

101–120

Consider CMP greater than $100,000 up to $175,000

121+

Consider CMP greater than $175,000

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