OCC Revises CMP Policy

For the first time in over twenty years,1 the Office of the Comptroller of the Currency (OCC) has formally changed its policy governing civil money penalties (CMP) against national banks, federal savings associations, federal branches of foreign banks, and their service providers and institution affiliated parties (IAP).2

Key changes from the OCC's 1993 policy include: an explicit application of the CMP policy to service providers; a tiered approach to penalties based on the entity's total assets; the addition of CMP factors for the effectiveness of internal controls and the compliance program and for individual accountability; revised matrices for calculating CMP amounts; separate matrices for institutions and IAPs; additional guidance on the CMP factors; and increased risk weightings for certain CMP factors.

This new CMP policy formalizes many aspects of the OCC's practice for determining CMP amounts in recent years (such as total assets). The more clearly articulated standards will also provide institutions with new tools to advocate for smaller CMPs in the 15-Day Letter process, supplementing arguments based on the statutory mitigating factors.

Background

The federal banking agencies' primary civil money penalty authority is 12 U.S.C. §1818(i).3 This provision provides for three penalty tiers, a procedure for the assessment and collection of the CMP, and a set of mitigating factors the agencies must take into account when determining the appropriate CMP amount. The banking agencies have long evaluated CMP amounts based upon a scored matrix of factors, and the OCC last announced a CMP matrix for tier 1 and tier 2 penalties in 1993. But developments in the banking system and the OCC's approach to enforcement appear to have led the OCC to formally revise the prior policy.

Changes to the 1993 Policy

Extension to Service Providers. The revised policy states that it applies to service providers. However, the scope of the OCC's CMP authority over service providers is unclear, notwithstanding the fact that the revised policy states that the OCC may assess CMPs against service providers pursuant to 12 U.S.C. § 1861 et seq. (the Bank Service Company Act) and 12 U.S.C. § 1464(d)(7). In Grant Thornton v. Office of the Comptroller of the Currency, the DC Circuit held that the OCC must prove that the independent contractor was involved in "conducting the business or affairs of [a] bank" to meet the statutory jurisdictional requirements for an...