How supervisory guidance impacts credit unions and their compliance obligations

Financial institutions in the US are regulated by several federal agencies including the National Credit Union Administration (NCUA), the Board of Governors of the Federal Reserve (the Federal Reserve), the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC). State agencies are involved as well, especially in the regulation of insurance products.

Regulation and supervision are complementary activities but distinct. Regulation involves writing the rules to implement the statutes Congress passes into law that direct how financial institutions must operate and issuing specific regulations and guidelines governing the formation, operations, activities, and acquisitions of financial institutions.

Once the rules and regulations are in place, supervision of the financial institution — monitoring, inspecting, and examining financial institutions — ensures that the institution is in compliance with those rules and regulations, and that it operates in a safe and sound manner.

So, what is the role of supervisory guidance in assisting regulated entities with their compliance obligations? While supervisory guidance does not have the force and effect of law, supervisory guidance is issued by an agency to advise prospectively about the manner in which the agency proposes to exercise a discretionary power. Supervisory guidance does not have the same formal impact on financial institutions as do applicable laws and regulations in terms of enforcement actions; it provides clarity vis-à-vis the differences between supervisory guidance and the applicable laws and regulations affecting the entity.

Most agencies issue various types of supervisory guidance, including, but not limited to, interagency statements, advisories, bulletins, policy statements, questions and answers, and FAQs. Supervisory guidance outlines the agencies’ supervisory expectations or priorities and articulates the agencies’ general views regarding practices for a given subject area.

In January 2021, the NCUA approved a final rule that outlines and confirms the agency’s use of supervisory guidance. The proposed rule was issued on November 5, 2020, as a joint interagency rulemaking among the NCUA, the Federal Reserve, the CFPB, the FDIC and the OCC.

The final rule codifies the Interagency Statement Clarifying the Role of Supervisory Guidance issued by the agencies in September 2018. The 2018 interagency statement reiterated well-established law to confirm that supervisory guidance does not create binding, enforceable legal obligations. Rather, supervisory guidance often provides examples of practices that mitigate risks, or that the agencies generally consider to be consistent with safety-and-soundness standards or other applicable laws and regulations, including those designed to protect consumers.

Credit unions and their management and boards should be able to demonstrate their knowledge of and attention to supervisory guidance since it reflects the topics, priorities and positions on issues that the agencies deem important especially in regard to matters of safety and soundness. Look to agencies websites to search for guidance on areas where you might need additional information to help resolve issues that fall in the grey area. NCUA’s final rule can be found here:

Patricia O'Connell

Patricia O'Connell

Patricia acts as Lead Compliance Counsel with Credit Union National Association (CUNA) where she works with the compliance team to provide compliance information, education and training, and regulatory advice to ... Web: Details