Avoiding Monetary Penalties After OCC Enforcement Orders

4 Min Read By: Daniel P. Stipano

IN BRIEF

  • The OCC might assess a civil monetary penalty even after a bank stipulates to issuance of a consent order, especially if the bank is deemed in noncompliance with the order.
  • Banks subject to a consent order should make development of a remedial action plan a top priority.
  • They should also establish effective governance mechanisms to oversee implementation, and dedicate staff and resources to timely execute the remedial action plan.

In recent years, the OCC has aggressively used its cease and desist authority to address a variety of supervisory problems, including unfair or deceptive acts or practices, Bank Secrecy Act/anti-money laundering, and safety and soundness. As a result, there are a sizeable number of consent cease and desist orders that are in place against OCC-supervised institutions. Although the OCC has issued consent orders against banks of all sizes, the largest institutions have been disproportionately affected, and many of them remain under longstanding consent orders.

Unfortunately, the issuance of a consent order does not necessarily resolve a bank’s supervisory issues with the OCC. In a series of high-profile cases last year, the OCC assessed civil money penalties against banks that were already subject to consent orders of various durations. Civil money penalties (CMPs) levied against five major banks in 2018 approached $800 million. All of these actions are for compliance breakdowns, and most of them involve deficiencies with respect to BSA/AML compliance, which continues to be a perennial issue. The size of these penalties alone demonstrates that the OCC will act forcefully to ensure that timely corrective action is taken, and that compliance with existing consent orders will be vigorously enforced.

The assessment of a CMP following the issuance of a consent order is not unusual. In fact, it has long been a common practice for the OCC, especially in BSA/AML cases, to bifurcate its decision with respect to a penalty assessment from the remedial consent order. There can be various reasons for this, but two common reasons are to allow the OCC’s CMP process to be informed by the bank’s record of compliance with the consent order and the results of any “lookback” reviews, and to coordinate the OCC’s penalty action with any other agencies that are taking a concurrent action.

Action Plans

Consent orders typically require banks to develop a number of action plans to remedy the violation or unsafe or unsound practice that gave rise to the order. Although prepared by the bank, the action plans must be submitted to the agency for a determination of supervisory nonobjection. The plans should contain detailed action items that serve as a roadmap for bringing the bank back into compliance with the applicable legal and regulatory requirements. The OCC expects such plans to include specific deadlines for completion of each action item, and those deadlines effectively become the applicable deadlines under the consent order. Thus, a failure to achieve timely compliance with the action items in the plan will cause the bank to be deemed in noncompliance with the consent order itself. This is significant because not only is a violation of a consent order a basis for a CMP assessment in and of itself, but it starts the clock running for determining the number of applicable violation days for purposes of calculating the maximum penalty the agency can assess.

Consequently, banks must carefully consider the elements of their action plan and set realistic deadlines for completion of each action item. Banks that are subject to consent orders must have not only a project team in place that can execute the action plan, but governance over the entire process to ensure that it stays on track. Although the bank can request the extension of a deadline, such requests must be well supported and are not freely granted.

Although action plans can be amended if new problems are identified, this can result in the consent order remaining in place for an extensive period of time, especially if new violations or deficiencies are cited at subsequent examinations. In general, the longer a consent order is in place without the bank achieving compliance with all of its articles, the greater the chances that the agency will assess a CMP, in addition to the bank being subject to the restrictions and consequences of the consent order for a longer period of time.

Conclusion

The OCC’s 2018 CMP cases underscore the possibility that the agency may assess a CMP even after the bank stipulates to issuance of a consent order, and the likelihood of a CMP assessment is greater if the bank is deemed in noncompliance with the order. In order to mitigate the likelihood of a CMP, it is imperative that banks subject to a consent order make development of a remedial action plan a top priority, establish effective governance mechanisms to oversee implementation, and dedicate staff and resources to execute the plan and achieve compliance in a timely fashion.

ABOUT THE AUTHOR

Daniel P. Stipano

Dan Stipano, a partner at Buckley LLP, spent 31 years at the Office of the Comptroller of the Currency, serving as Deputy Chief Counsel, and Director of the Enforcement & Compliance Division, where…

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