PROHIBITION ON THE USE OF REPUTATION RISK BY REGULATORS
Department of the Treasury
The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have adopted a final rule which eliminates reputation risk as a standalone metric within their bank supervisory frameworks.
Under the new regulation, the agencies are strictly prohibited from criticizing or taking adverse supervisory actions against financial institutions on the basis of reputation risk.
Regulators can no longer instruct, require, or encourage banks to close accounts or terminate services due to a customer's political, social, cultural, or religious views or constitutionally protected speech.
The rule also forbids agencies from taking actions designed to punish institutions for engaging with politically disfavored but lawful business activities.
Examiners are now barred from downgrading an institution's supervisory ratings, such as CAMELS scores, or denying licensing applications under the pretext of reputation management.
By explicitly defining reputation risk to exclude issues directly related to an institution's financial or operational condition, the rule requires regulators to focus solely on concrete, quantifiable market risks.
This strictly curtails the ability of agency personnel to use informal feedback, memos, or conditions on approvals to indirectly push for the debanking of legal industries.
These restrictions apply exclusively to the internal operations and personnel of the OCC and FDIC, placing no new mandates or operational restrictions on the self-directed business decisions of the supervised financial institutions.
The agencies maintain full authority to enforce compliance with Bank Secrecy Act (BSA) and anti-money laundering (AML) requirements, provided those statutes are not used as a pretext for reputation-based supervision.
Furthermore, the rule does not alter any existing prohibitions regarding transactions with Office of Foreign Assets Control (OFAC) sanctioned persons or jurisdictions.
