Why it matters

To encourage communication of problems and expediency of correction, the Office of the Comptroller of the Currency (OCC) updated its policy on “Matters Requiring Attention,” or MRAs, in a newly released bulletin. The changes are intended to ensure that a uniform standard exists to inform banks when examiners discover problems and that banks in turn conduct the process of fixing the problem more quickly. In addition to the establishment of standardized language for reporting an issue to bank management and boards with a clear categorization of the issue (such as new, repeated, or escalating), the OCC set additional expectations for executives. “Successful supervision relies upon clear communication of supervisory expectation,” Comptroller Thomas J. Curry said in a statement about the policy changes. “Clarifying how we use MRAs helps ensure that our concerns are addressed, that deficient practices are corrected early, and that we can track concerns more effectively.”

Detailed discussion

MRAs “communicate specific supervisory concerns identified during examinations in writing to boards and management teams of regulated institutions,” the agency explained in OCC Bulletin 2014-52, and require timely and effective corrective action by bank management, as well as follow-up by OCC examiners.

To improve the process, the bulletin standardized MRA terminology, format, follow-up, analysis, and reporting across the agency. By providing consistent reports from examiners, boards and management can respond to problems in a more efficient manner, the OCC said.

Going forward, examiners will make use of the Five Cs (concern, cause, consequence, corrective action, and commitment) format in tracking the problem. The concern, or deficient banking practice, will be identified with a description of how it deviates from sound governance or risk management principles, for example, with a determination of the cause, when it is evident.

The consequence – what could happen to the bank if the concern continues, like violations of the law or enforcement actions – is followed by the corrective action, which describes what the board and management must do to address the concern and eliminate the cause. Finally, a commitment will be reached with regard to the bank’s action plan, with specific milestones, a completion date, and staff accountable for the implementation.

Not until the bank implements and the OCC verifies and validates the effectiveness of the corrective action can the concern be “closed.” “Open” concerns may be categorized in one of six ways: new, repeat (from the prior five-year period), self-identified (an “important consideration” when the OCC considers the bank’s risk management system, the agency noted), past due, pending validation, or escalated (with milestones not met or inadequate attention devoted to correcting the deficiency).

The OCC also established additional expectations for boards, including holding management accountable for the deficient practices, directing management to develop and implement corrective actions, approving the necessary changes to the bank’s policies, processes, procedures, and controls, and establishing processes to monitor progress and verify and validate the effectiveness of management’s corrective actions.

“Timely and effective” communication between bank management, boards, and examiners is also encouraged by the bulletin, with a promise from the OCC that examiners will provide draft concerns to help with factual accuracy, conduct quarterly follow-ups on concerns, provide a response to bank communications within 30 days of receipt, and provide information and recommendations to boards and management apart from the MRA process.

The changes grew out of an international peer review of the OCC’s supervisory efforts last year, which recommended that the agency develop controls towards a “consistent resolution of identified deficiencies by the institutions,” as well as “controls to better manage the MRA follow-up process.”

The new policy applies to examination of all national banks, federal savings associations, and federal branches and agencies, regardless of size.

To read OCC Bulletin 2014-52, click here.