Advice from Consultants : Sorting out the OCC’s guidance on using third-party consultants during enforcement actions

Survey says …

Call Report Load

How burdensome is call report preparation to your community bank, and would a short form call report every other quarter reduce its burden?

Source: ICBA member Quick Poll, November 2013

As part of an enforcement action or when remedial actions are needed, the Office of the Comptroller of the Currency may require national banks and federal thrifts to engage an independent consultant to ensure that independent judgment and the requisite expertise are employed. In November, the OCC issued Bulletin 2013-33, which establishes standards and provides guidance to national banks and, federal savings associations when engaging independent consultants as part of an enforcement action to address significant violations of law, fraud or harm to consumers.

The bulletin is not applicable when the OCC requires a bank to hire a consultant to provide expertise needed to correct operational or management deficiencies. In those circumstances, banks should review and implement the guidance outlined in OCC Bulletin 2013-29 titled “Third-Party Relationships.”

Through its enforcement authority, the OCC has ordered nationally chartered banks of all sizes to retain independent consultants. Such consultants have been engaged to:

When the OCC determines that an enforcement action requires the use of an independent consultant, the agency now requires a bank to submit for review due diligence information on the consultant, including the proposed consultant’s qualifications and terms of service. The guidance outlines three primary areas of consideration for such conducting due diligence:

  1. Due diligence expected for engaging a consultant. A bank should be guided by OCC Bulletin 2013-29, “Third-Party Relationships: Risk Management Guide,” as well as by 2013-30 Guidance. A bank should submit its evaluations of a consultant’s qualifications, independence, resources, expertise, capacity, reputation, information security and document custody practices, risk management and reporting, conflicts of interests. It should also provide information on the consultant’s financial viability and any professional disciplinary actions filed against the consultant and the potential impact of such actions on its evaluation.
  2. Assessing the independence of the consultant. Assessing a consultant’s independence should include any existing or prior relationships with the bank, its affiliates or its insiders; any potential conflicts of interest; and any other relevant factors. The consultant should provide assurances that its proposed engagement will not breach any professional restrictions governing conflicts of interest to which the consultant is subject.
  3. Engagement contract and work plan. The bank should ensure the proposed consultant engagement contract guarantees:

Considerations governing the OCC’s monitoring of a consultant’s work include (1) the nature of deficiencies or violations the independent consultant is engaged to identify including with respect to recommendations regarding remediation, (2) the scope and duration of work and (3) the potential for a materiality of harm to consumers and the bank.

As part of the assessment of the bank’s compliance with the enforcement action, the OCC must determine whether the bank has addressed and corrected the violations or deficiencies that formed the basis for the enforcement action. The OCC will review the consultant’s final written report of its findings and recommendations. This review provides the OCC the opportunity to assess whether all matters defined in the enforcement action and reviewed by the consultant were adequately addressed.

Kris Welch  is a vice president with Chartwell Compliance in Rockville, Md.


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