Alert November 26, 2013

OCC Issues Guidance on Establishing Standards for Use of Independent Consultants in Connection with Compliance with Enforcement Actions

The OCC issued guidance establishing standards that it will use when requiring its supervised entities—national banks, federal savings associations or federal branches or agencies—to employ independent consultants to comply with an enforcement action involving alleged significant violations of law, fraud, or harm to consumers. The guidance provides that in assessing whether the OCC will require a supervised entity to retain an independent consultant in an enforcement action, it will consider seven factors, including: (1) the severity of the violations (including their impact on consumers, the supervised entity and others); (2) the criticality of the function requiring remediation; (3) the OCC’s confidence that the supervised entity’s management has the ability to identify and correct violations in a timely manner; (4) whether the supervised entity has the expertise, staffing and resources necessary to take the required corrective actions; (5) the actions already taken by the supervised entity to correct the violations or address the problematic issues; (6) the type of services the independent consultant would provide; and (7) the available alternatives to the engagement of an independent consultant.  Notably, the guidance cautions that a supervised entity’s use of an independent consultant does not absolve its management or board of directors of their responsibility to see that “all needed corrective actions are identified and implemented.”

The guidance also provides that if an independent consultant is required to be retained in connection with an enforcement order, the OCC will require the supervised entity to submit information to the OCC regarding the due diligence that the supervised entity has conducted regarding the independent consultant it proposes to retain. In particular, the OCC will seek information concerning the qualifications, independence, resources, expertise, capacity, reputation, information security and document security practices, risk management and reporting, conflicts of interest and financial viability of the proposed independent consultant. In assessing the independence and level of objectivity of the proposed independent consultant, the OCC expects that a supervised entity’s submission to the OCC in support of a proposed independent consultant will address, among other things: (1) the scope and volume of other contracts or services provided (or previously provided) by the independent consultant to the supervised entity; (2) whether the supervised entity proposed any mitigating actions to address any potential conflict of interest (or the appearance of a conflict of interest); (3) the amount of fees to be paid to the independent consultant (and any other financial relationship with the consultant); and (4) any business or personal relationship of the independent consultant (or its employees) with a board member or executive officer of the supervised entity.