OCC Bulletin 1997-8| January 17, 1997
OCC Standards for Developing Regulations: Message to Bankers/Examiners
Chief Executive Officers and Compliance Officers of all National Banks, Department and Division Heads, and all Examining Personnel
The Office of the Comptroller of the Currency (OCC) has adopted Standards for Developing Regulations that apply to all the rules that the agency issues. These standards, which are based on the standards that the OCC used in the comprehensive revision of its regulations undertaken pursuant to its Regulation Review Program, serve to link the design and development of the OCC's regulations to the four organizing principles that support its mission. The OCC will use these standards to ensure that each of its rules, not only achieves the particular regulatory or supervisory objective to which it is directed, but also comports with the OCC's overarching mission and direction.
These standards are issued pursuant to the commitment made by the OCC in its Customer Service Plan to establish standards governing the development of its regulations.
The OCC is responsible for overseeing the approximately 2,800 national banks that make up the national banking system. In this role, the OCC regulates, supervises, and examines national banks, determines the banks' corporate structure and powers, and assesses customer relationships. The substantive content of the OCC's regulations reflects four organizing principles that support this mission:
- The OCC's regulations help ensure safety and soundness by establishing legally binding standards that set the limits of acceptable conduct for national banks.
- Regulations influence how banks do business and serve their customers. The OCC's regulations promote competitiveness by facilitating a national bank's ability to develop new lines of business subject to any safeguards that are necessary to ensure that the bank has the expertise to manage risk effectively and adapt its business practices to deal responsibly with its customers.
- Regulations can also affect national banks' ability to compete by contributing significantly to their costs. The OCC's goal is to improve efficiency and reduce burden by updating and streamlining its regulations and eliminating those that no longer contribute significantly to the fulfillment of its mission.
- National banks are the principal users of the OCC's regulatory product, but the agency's regulations can also have a substantial effect on individuals, businesses, and communities. The OCC's regulations help assure fair access to financial services for all Americans by removing unnecessary impediments to the flow of credit to consumers and small businesses, by encouraging national banks' involvement in community development activities, and by implementing federal laws designed to protect consumers of financial services.
In mid-1993, the OCC initiated its Regulation Review Program, which comprises a top-to-bottom review of all of the OCC's regulations. The program is part of the OCC's overall effort to promote an environment where risk is prudently managed by banks and appropriately monitored by the OCC, without imposing unnecessary regulatory burdens that undermine the ability of banks to operate efficiently, compete vigorously, and provide credit and other financial products and services to the public. The program also responds to the need for regulation that is effective but sensible and cost-conscious. The guidelines under which the Regulation Review Program has been conducted form the basis for the standards set forth in this Bulletin that apply to all of the OCC's rulemakings.
Standards for Developing the OCC's Regulations
1. The OCC's regulations are risk-focused and results-oriented.
Regulations are risk-focused if they effectively target the areas of bank activity that present the greatest risk to safety and soundness, the payments system, or the long-term vitality of the national banking system, and when they address areas where either banks or the OCC have clearly established statutory responsibilities. In assessing how to regulate a particular activity and the need for regulation in that area, the OCC will, when appropriate, consider how nonbanks performing comparable functions are regulated and then assess the potential for alternative regulatory approaches to be applied to the regulation of national banks.
Regulations are results-oriented if they focus on the achievement of key regulatory or supervisory objectives rather than mandating compliance with detailed steps leading up to those objectives. In developing regulations, the OCC takes into account changes in banking organizations' structures and the impact of technology on how banks deliver products and services. The OCC seeks to identify regulatory and supervisory goals that will remain valid even as banking structures change and the means by which banks operate and serve their customers evolve. In this way, the OCC ensures that its rules set the standards for the effective supervision of national banks without stifling banks' ability to undertake innovation or accommodate change.
2. The OCC's regulations eliminate unnecessary regulatory burden and minimize the burden resulting from requirements that are necessary for the effective supervision of national banks.
The OCC eliminates regulatory requirements that are not necessary to ensure the safety and soundness of national banks, to support consumers' access to financial services, or to accomplish other aspects of the OCC's statutory mission.
To minimize the burden that results from requirements that are necessary for effective supervision, the OCC uses a differential regulatory approach when appropriate to the issue under review. Differential regulation means that requirements are not imposed on a "one-size-fits-all" basis, but are, instead, tailored to the condition or characteristics of different categories of national banks. For example, risk levels are often dependent upon differences in banks' capital levels, CAMEL ratings, size, or other objective factors. Moreover, some regulatory requirements impose disproportionately greater burdens on small banks. Therefore, the OCC may vary regulatory requirements according to these differences. Similarly, reporting or record keeping requirements may differ depending on a bank's size or risk levels.
3. The OCC's regulations promote national banks' competitiveness and allow industry innovation.
In some instances, national banks must apply to or consult with the OCC before expanding their lines of business or undertaking certain activities. The OCC's regulations establish application criteria and procedures that allow maximum flexibility for the strongest banks and closer scrutiny and controls for banks with demonstrated weaknesses. The OCC's regulations provide for processes that are predictable, so that banks know what is necessary in order to request OCC approval; orderly, so that banks can plan appropriately; and reasonably prompt, so that banks do not lose competitive opportunities as a result of unnecessary regulatory delay.
National banks operate in a competitive environment in which providers of financial services are subject to different regulatory schemes administered by different federal and state agencies. When possible, the OCC consults and coordinates with the other federal banking agencies (the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision) and with other financial services regulators to achieve consistency in the way national banks and their competitors are regulated in the conduct of the same or similar activities.
4. The OCC's regulations are written so that they can be understood by a reasonably knowledgeable person. The OCC uses the regulatory approach best suited to the subject matter.
Regulatory burden and cost result if bankers must always seek the advice of experts in order to understand the requirements that apply to them. The OCC writes regulations in a clear, plain style and structures regulations to enhance their clarity.
In drafting its regulations, the OCC uses the approach best suited to the subject of the rule. Some regulations may appropriately prescribe a bright-line standard, which provides the greatest certainty to banks about the limits of acceptable conduct. Other regulations may contain more general standards that offer banks greater flexibility but reserve more discretion to the OCC. Often, a combination of approaches is best. In each case, the OCC balances banks' need for a predictable response from the regulator against the goal of providing maximum flexibility to bank management consistent with principles of safety and soundness and other statutory requirements.
5. The OCC maximizes the opportunity for national bank and public participation in its rulemakings and times the effective dates of its regulations to facilitate national banks' planning processes.
The OCC facilitates participation in its rulemakings by banks and members of the public by allowing time for thoughtful comment. Absent unusual circumstances, the OCC allows a comment period of not less than 60 days. The OCC accepts comments in a variety of formats, including by facsimile transmission and electronic mail. The OCC uses sparingly the discretion it has under applicable laws to dispense with prior notice and opportunity for comment.
Consistent with applicable statutory requirements, the OCC times the effective dates of its regulations to allow an adequate period for national banks to adjust their data systems and business planning processes to accommodate change. The OCC uses sparingly the discretion is has under applicable laws to accelerate the effective dates of regulations.
6. The OCC encourages continual reevaluation of its rules.
National banks operate in a rapidly changing business environment in which the effectiveness or utility of today's regulations may be eroded by tomorrow's developments in products, services, or technology. The OCC is committed to keeping its regulations current. The OCC encourages national banks, members of the public, and its own staff to provide feedback on how its regulations are working.
The OCC uses a variety of mechanisms to obtain feedback either directly or indirectly. These mechanisms may include: a new initiative to assess the effectiveness of regulations in meeting articulated policy goals; participation by the Comptroller and senior members of the agency's staff in outreach or focus group meetings with bankers and public interest groups; meetings with representatives of individual banks or with members of trade, professional, or public interest groups; intra-agency updates and feedback via meetings and electronic mail; and solicitation of comment on a continuing basis via the Internet.
For further information or to provide comment on these standards for developing regulations, contact Karen Solomon, Director, Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 250 E Street, SW, Washington, DC 20219. Telephone: (202) 874-5090; Fax: (202) 874-4889; Internet address: Karen.Solomon@OCC.treas.gov.
Eugene A. Ludwig
Comptroller of the Currency