Federal Agencies Propose Regulation Codifying Use of Supervisory Guidance

Five federal agencies on Thursday issued a proposed regulation that would codify a 2018 guidance clarifying that supervisory guidance does not have “force and effect of law.”

The agencies—the Board of Governors of the Federal Reserve System; the Consumer Financial Protection Bureau; the Federal Deposit Insurance Corp.; the National Credit Union Administration; and the Office of the Comptroller of the Currency—invited comment on the proposal (https://files.consumerfinance.gov/f/documents/cfpb_npr_supervisory-guidance_2020-10.pdf), which outlines and confirms the agencies’ use of supervisory guidance for regulated institutions.

The proposal would codify the statement, as amended, issued in September 2018 by the agencies that clarified the differences between regulations and guidance (https://www.federalreserve.gov/supervisionreg/srletters/sr1805.pdf).

That statement noted “unlike a law or regulation, supervisory guidance does not have the force and effect of law and the agencies do not take enforcement actions or issue supervisory criticisms based on non-compliance with supervisory guidance. Rather, supervisory guidance outlines supervisory expectations and priorities, or articulates views regarding appropriate practices for a given subject area.”

The statement clarified in contrast to supervisory guidance, “regulations do have the force and effect of law and enforcement actions can be taken if regulated institutions are in violation. Rather, supervisory guidance outlines the agencies’ supervisory expectations or priorities and articulates the agencies’ general views regarding appropriate practices for a given subject area.

The Mortgage Bankers Association has previously expressed support for clarity in the supervisory guidance process, noting that earlier statements and guidance on specific issues created “regulation by enforcement” instead of updating rules and regulations, leading to concern and confusion among regulated entities.

Comments will be accepted for 60 days following publication in the Federal Register.