Regulators Define 'Unsafe Practices', Shift Focus to Financial Risks

The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation have finalized a rule that defines 'unsafe or unsound practices' in bank supervision. The rule, published on August 27, gives regulators a clear definition to guide their actions. This definition is tied to Section 8 of the Federal Deposit Insurance Act.

The new rule establishes that an 'unsafe or unsound practice' must involve conduct that deviates from generally accepted prudent operational standards and has either already caused, or could reasonably cause, material financial harm to an institution or pose significant risk to the Deposit Insurance Fund. This change shifts the focus of regulatory attention toward actual financial risks.

The rule also overhauls how Matters Requiring Attention (MRAs) get issued. Examiners can only issue MRAs for practices that meet the newly defined risk-based threshold. Additionally, the OCC has committed to not pursuing Section 8 enforcement actions without first giving institutions the opportunity to remediate identified issues during the normal supervisory process.

The rule becomes effective 60 days after its publication in the Federal Register. The new framework is designed to sharpen the application of the rule in both enforcement and day-to-day supervision, redirecting regulatory attention toward actual financial risks.