Banking and Finance Law Daily OCC final rule will update licensing policies, eliminate certain requirements
Tuesday, November 17, 2020

OCC final rule will update licensing policies, eliminate certain requirements

By Colleen M. Svelnis, J.D.

According to the agency, these updates will eliminate unnecessary requirements consistent with safety and soundness, along with technical changes.

The OCC has issued a final rule amending the agency’s rules relating to policies and procedures for corporate activities and transactions involving national banks and federal savings associations to update and clarify the policies and procedures. The final rule makes changes to 12 CFR Part 5 to update and clarify licensing policies and procedures and eliminate unnecessary requirements. The changes are intended to eliminate unnecessary requirements consistent with safety and soundness, along with technical changes. Most portions of the rule are effective on Jan. 1, 2021, except amendment 15(g), which is effective upon publication of the final rule in the Federal Register.

The OCC also alerted its covered institutions about the rule in a Bulletin. The changes include:

  • making the definition of "well managed" consistent for all filing types;
  • eliminating the filing requirement for FSAs that adopt without change the OCC’s model or optional bylaws;
  • adding numerous provisions to 12 CFR 5.33 permitting national banks and FSAs to elect to follow the procedures applicable to state banks or state savings associations, respectively, for certain business combinations;
  • providing procedures for granting and revoking citizenship and residency waivers for national bank directors;
  • permitting national banks to request approval for a reduction in capital over more than four quarters;
  • changing the definition of "troubled condition" for purposes of changes in directors and senior executive officers to align with OCC supervisory practices. The updated definition specifies that an enforcement action (a cease-and-desist order, consent order, or formal written agreement) must require the national bank or FSA to improve its financial condition for it to be considered in "troubled condition" solely as a result of the enforcement action.

In addition, the final rule includes the following changes for operating subsidiaries:

  • permits an eligible operating subsidiary of a qualifying national bank or FSA to engage in an activity that is substantively the same as a previously approved bank or FSA activity, respectively, by filing a notice with the OCC or an application through expedited review; and
  • removes the annual national bank operating subsidiary reporting requirement.

The rule also includes the following changes for non-controlling investments by a national bank and pass-through investments by a federal savings association:

  • allows investments in enterprises that have not agreed to OCC supervision (with prior OCC approval);
  • provides an expedited review procedure for these investments under certain conditions;
  • expands the investments eligible for notice; and
  • permits investments without a filing in enterprises conducting activities limited to those previously reported by the national bank or FSA in a previous non-controlling investment or pass-through investment filing.

Comments and changes. The agency made few changes from the proposed rule (see Banking and Finance Law Daily, March 6, 2020). The OCC received six substantive written comments on this proposal.

Regarding the proposed changes for Section 5.2(b), one commenter expressed concern that the change seemed vague and suggested the OCC note specific instances where flexibility is needed to eliminate vagueness. The OCC disagreed with this commenter and adopted this change as proposed, noting that the final rule includes examples that are intended to explain when the OCC may act while not limiting its ability in unforeseen cases where additional flexibility may be needed.

Under § 5.3, one commenter discussed the proposed definition for the term "previously approved activity," and requested that the OCC clarify that the definition include a previous OCC approval for any bank, not only the bank in question. To clarify this, the OCC has changed "an activity" to "any activity" in this definition in the final rule.

The OCC received no comments on its proposal to add a definition of "well capitalized" to § 5.3 that incorporates cross-references, and adopted it in the final rule as proposed, with one technical change to make a cross-reference citation more specific.

The OCC received one comment regarding adding a proposed definition for "well managed" to § 5.3. the comment opposed the inclusion of management rating in a definition of "well managed," except as required by statute. The OCC disagreed and adopted the definition of "well managed" as proposed. The commenter had stated that the financial subsidiary statutory definition of "well managed" was intended for new non-traditional activities, not core banking activities. The OCC disagreed and reiterated that a single definition of "well managed" would enhance bank safety and soundness and provide a clearer and more consistent standard for national banks and federal savings associations. The commenter had also requested that if the OCC adopts the proposed "well managed" definition, the definition should include reasonable exceptions to the associated filing requirements. This commenter also requested a transition period in event a bank receives a new rating.

The OCC stated that it received three comments on a possible amendment to the definition of "short-distance relocation." In light of the public comments and after further reviewing the suggestion, the OCC decided not to expand the distances in the definition of "short-distance relocation" in the final rule. The OCC believes that a bifurcated definition would increase burden on national banks without providing a compensating benefit. In addition, the exception could cause confusion for banks if a census tract low and moderate income (LMI) status changes. Therefore, the OCC kept the current definition of "short distance relocation" unchanged.

The OCC received one comment on new § 5.4(g) where the OCC had proposed to move the certification requirement in current § 5.13(h). The commenter stated that it is unclear whether a filer would be subject to criminal penalties even if a material misrepresentation or omission were not made knowingly and willfully. The OCC declined to address the comment in § 5.4(g).

The OCC received three comments on § 5.13 contains the OCC’s procedures for acting on a filing. Paragraph (a)(2)(ii) of § 5.13 provides that the OCC will not change the expedited procedures if it determines, among other things, that an adverse comment does not raise a significant supervisory, CRA (if applicable), or compliance concern or a significant legal or policy issue, or is frivolous or filed primarily as a means of delaying action on the filing.

The OCC proposed adding non-substantive comments to this list to better align the regulation with OCC policy. the OCC received three comments on this proposed change. One commenter opposed this change stating that it would increase the risk that the OCC could arbitrarily classify comments as non-substantive. The OCC explained that it believes that "the criteria for being ‘non-substantive’ set forth in the amendment provides a clear standard for when the OCC will consider a comment to be non-substantive and provides commenters with guidance on submitting views on a filing." Another commenter requested that the final rule clarify whether a "prior filing" means a filing from the current filer or a different bank that shares the same assessment area. This provision is referring to the current filer. As requested by the commenter, the final rule includes language to clarify this point. The OCC adopted the proposed amendments to § 5.13 (a)(2) with that change.

The final rule makes one new technical correction to § 5.20. It removes the reference to 12 CFR part 195, the federal savings association CRA rule, in §5.20(e)(2)(ii). This change is effective as soon as the final rule is published in the Federal Register.

The OCC also proposed technical changes throughout part 5, including replacing the word "shall" with another appropriate word or words. These technical changes, as well as other minor proposed wording changes, are included in the final rule.

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