OCC and FDIC finalize rule defining unsafe or unsound banking practices

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have issued a final rule to formally define ‘unsafe or unsound practice’ and establish uniform standards for supervisory actions.

The new regulation shifts regulatory focus toward material financial risks rather than non-financial matters such as documentation or general processes. To qualify as an ‘unsafe or unsound practice,’ conduct must deviate from prudent operational standards and have caused, or reasonably be expected to cause, material financial harm to an institution or pose a significant risk to the Deposit Insurance Fund.

Key changes include:

• A uniform, risk-based definition tied to Section 8 of the Federal Deposit Insurance Act. • A revised framework for issuing Matters Requiring Attention (MRAs), which can now only be issued for practices meeting the new materiality threshold. • A commitment from the OCC to allow institutions the opportunity to remediate identified issues during the normal supervisory process before pursuing Section 8 enforcement actions.

FDIC Chair Travis Hill stated that the rule aims to provide greater clarity and certainty for banks by ensuring examiners focus on issues with a material impact on financial condition. The rule becomes effective 60 days after its publication in the Federal Register.