[Federal Register Volume 85, Number 52 (Tuesday, March 17, 2020)]
[Notices]
[Pages 15175-15183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05491]
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FEDERAL RESERVE SYSTEM
[Docket No. OP-1696]
Internal Appeals Process for Material Supervisory Determinations
and Policy Statement Regarding the Ombudsman for the Federal Reserve
System
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final policy.
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SUMMARY: The Board is revising its internal appeals process for
institutions wishing to appeal an adverse material supervisory
determination and its policy regarding the Ombudsman for the Federal
Reserve System.
DATES: The amendments and policy are applicable on April 1, 2020.
FOR FURTHER INFORMATION CONTACT: Jason A. Gonzalez, Senior Special
Counsel, (202) 452-3275, Jay Schwarz, Special Counsel, (202) 452-2970,
or Lucas E. Beirne, Counsel, (202) 452-2933, Legal Division, Ryan
Lordos, Deputy Associate Director, (202) 452-2961, Division of
Supervision & Regulation, or Jeremy Hochberg, Managing Counsel, (202)
452-6496, or Maureen Yap, Senior Counsel, (202) 452-2642, Division of
Consumer and Community Affairs, for matters relating to the appeals
process; and Margie Shanks, Ombudsman, (202) 452-3584, or Jay Schwarz,
Special Counsel, (202) 452-2970, or Lucas E. Beirne, Counsel (202) 452-
2933, Legal Division, for matters relating to the functions of the
Ombudsman. Telecommunications Device for the Deaf (TDD) users may call
(202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
In February 2018, the Board of Governors of the Federal Reserve
System (``Board'') invited public comment on proposed amendments to its
intra-agency process for appeals of material supervisory determinations
and to its policy regarding the Ombudsman of the Federal Reserve System
(``Federal Reserve'').\1\
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\1\ 83 FR 8391 (Feb. 27, 2018).
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A. Prior Appeals Process and Ombudsman Policy
The Board first established guidelines for an appeals process in
March 1995, when, after providing the opportunity to comment, the Board
published final guidelines to implement section 309 of the Riegle
Community Development and Regulatory Improvement Act of 1994 (the
``Riegle Act''), 12 U.S.C. 4806. Section 309 requires the Federal
banking agencies, including the Board, to maintain an independent,
intra-agency appellate process for review of material supervisory
determinations.
In general, the prior guidelines provided that all institutions
that are subject to Federal Reserve oversight, including bank holding
companies, U.S. agencies and branches of foreign banks, and Edge
corporations, may appeal any material supervisory determination.\2\
Appeals were decided within a specified time frame by a review panel
selected by the Reserve Bank, in consultation with Board staff, that
was composed of persons who were not employed by the Reserve Bank and
had not participated in, or reported to the persons who made the
material supervisory determination under review. An institution was
granted the further right to appeal an adverse decision by the review
panel first to the President of the Reserve Bank that made the material
supervisory determination and ultimately to a member of the Board. The
prior guidelines also had safeguards to protect institutions that filed
appeals from examiner retaliation.
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\2\ 60 FR 16470 (Mar. 30, 1995).
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The prior guidelines applied to any ``material supervisory
determination,'' which included any material matter relating to the
examination or inspection process. The only matters excluded from this
appeals process were those matters for which an alternative,
independent process of appeal exists, such as the imposition of a
Prompt Corrective Action directive or a cease and desist order or other
formal actions. As noted in the prior guidelines, institutions were
encouraged to express questions or concerns about supervisory
determinations during the course of an inspection or examination,
consistent with the longstanding Federal Reserve practice of resolving
problems informally during the course of the inspection or examination
process.
The Board's prior Ombudsman policy was adopted in August 1995. It
specified the responsibilities of the Ombudsman, which include serving
as a point of contact for complaints regarding any Federal Reserve
action, referring complaints to the appropriate person, and
investigating and resolving complaints of retaliation.
B. Proposed Appeals Process and Ombudsman Policy
The Board proposed to amend its appeals process for material
supervisory determinations in several ways. Specifically, the Board
proposed to reduce the levels of appeal from three to two and to
enhance independent review of the matter by providing that Federal
Reserve and Board staff not affiliated with the affected Reserve Bank
review the matter at both appeal levels. The Board proposed
establishing specific standards of review to be applied in the two
levels of appeal. The panel that reviews the initial appeal would be
required to approach the determination being appealed as if no
determination had previously been made by Federal Reserve staff. The
initial review panel would consider a record that includes any relevant
materials submitted by the appealing institution and Federal Reserve
staff, and have the discretion to augment the record in appropriate
circumstances. The final review panel would consider whether the
decision of the initial review panel is reasonable and supported by a
preponderance of the evidence in the record, but would not seek to
augment the record with new information. To maximize transparency, the
decision of the final review panel would be made public. Finally, the
Board proposed to establish an accelerated process for appeals that
relate to or cause an institution to become critically undercapitalized
under the Prompt Corrective Action (``PCA'') framework to better assure
that a review of an adverse material supervisory determination occurs
within the PCA time frame of 90 days.
The Board also proposed changes to the Ombudsman policy. The
proposed
[[Page 15176]]
revisions would formalize many of the current practices of the
Ombudsman, including receiving supervisory-related complaints and
material supervisory determination appeals. In addition, the proposed
revisions would allow the Ombudsman to attend meetings or deliberations
relating to an appeal as an observer, if requested by the institution
or Federal Reserve staff. The proposed changes also would formalize the
Ombudsman's role as the decision-maker with respect to claims of
retaliation.
Additional details of the proposed process and policy are described
further below in connection with the comments that relate to them.
II. Overview of Changes to the Proposal
General Summary of Comments
The Board received five comment letters regarding the proposal from
industry trade associations and a law firm. While commenters generally
expressed support for the proposed amendments, most commenters
recommended revisions to the proposed amendments. Among the suggestions
made by the commenters are that the proposal be revised to:
Clarify that Matters Requiring Attention (``MRAs'') and
Matters Requiring Immediate Attention (``MRIAs'') are appealable
material supervisory determinations;
Permit an institution's senior management to decide
whether to appeal a material supervisory determination instead of
requiring the board of directors to approve filing an appeal;
Permit extensions of the time to file an appeal of a
material supervisory determination;
Permit an institution to meet with the review panels when
the institution makes the request in a timely manner;
Articulate a clear and unequivocal de novo standard of
review;
Empower the Ombudsman to act as the decision-maker in the
appeals process; and
Empower the Ombudsman to decide whether an examiner should
be excluded from future examinations for substantiated claims of
retaliation.
In response to the comments, the Board has revised the final
appeals process in a number of significant ways. In particular, as
discussed below, the Board has modified the proposal to:
Clarify that MRAs and MRIAs are appealable material
supervisory determinations;
Permit an institution's senior management to file an
appeal, provided that management informs the institution's board of
directors of their decision to file an appeal and keeps the board
informed of the status of the appeal;
Permit an institution to request an extension of time to
file an appeal in appropriate circumstances; and
Clarify that, at an institution's request, the initial
review panel must schedule a meeting with the institution.
The final appeals process will apply to all material supervisory
determination appeals initiated after the effective date.
Appeals Process
Since 1995, the Board has had the opportunity to observe the
operation of the appeals guidelines over a significant period of time
and receive feedback from supervised institutions. Based on that
experience and feedback, the Board proposed to amend its appellate
process in several ways. In particular, the proposal was designed to
improve and expedite the appeals process, particularly for institutions
that are in troubled condition. In doing so, the proposal attempted to
strike an equitable balance among accommodating the interests of the
institutions the Federal Reserve supervises in a substantive review of
material supervisory determinations, the institutions' due process
rights, the institutions' interest in achieving a swift resolution of
any material supervisory determination in dispute, and the interests of
both an appealing institution and the Federal Reserve in the efficient
use of limited resources. In addition, the proposal was intended to lay
out a more explicit process that will allow more uniform application
than has occurred under the existing guidelines.
Definition of Material Supervisory Determination
The proposal included a detailed description of what constitutes a
material supervisory determination in order to promote a better
understanding of whether a supervisory determination is material.
Commenters suggested that the proposal be clarified with respect to
what qualifies as a material supervisory determination. In particular,
commenters indicated that MRAs and MRIAs should be specifically listed
as appealable material supervisory determinations. That Board agrees
that MRAs and MRIAs are material by definition and the final appeals
process has been modified to clarify that they will all be appealable
as material supervisory determinations. The Board recognizes, however,
that some examination findings are issued jointly with other agencies.
In these circumstances, the Board will consider an appeal to the extent
the material supervisory determination was issued by the Board, unless
an independent right of appeal has been established, such as with
respect to Shared National Credit program determinations. Likewise,
actions by the Board to refer matters to other relevant government
agencies, such as a written notice of a referral to the Attorney
General pursuant to the Equal Credit Opportunity Act (``ECOA'') or a
notice of a referral to the Secretary of Housing and Urban Development
(``HUD'') for violations of the ECOA or the Fair Housing Act are not
appealable material supervisory determinations because they are
referrals of information upon which another agency may make a
determination. In addition, the Board is clarifying that it only issues
material supervisory determinations in writing.
Who Must Approve an Appeal
The proposal maintained the requirement in the Board's current
appeals process that the decision to bring an appeal must be made by an
institution's board of directors. One commenter suggested that the
Board should permit senior management to bring an appeal because the
decision to pursue an appeal falls within management's role of
conducting the day-to-day operations of the institution, and it would
be appropriate for management to keep the institution's board of
directors apprised of any such decision, consistent with the board of
directors' oversight role. The Board has revised the appeals process to
adopt this suggestion because it is consistent with an efficient and
timely appeals process and reflects a reasonable balance of
responsibilities between senior management and the institution's board
of directors. To reflect the significance, however, of the decision to
bring an appeal, the process imposes an obligation on senior management
to inform the institution's board of directors of the decision, and to
keep the board of directors informed of the status of the appeal.
Timing of Appeals and Levels of Review
The Board's current appeals process was designed with three levels
of appeal in an attempt to ensure objectivity in the appeals process.
However, experience has shown that objectivity can be ensured with a
more streamlined and efficient process. With these goals in mind, the
proposal reduced the levels of appeal from three to two and enhanced
independent review of the matter by providing that Federal Reserve and
[[Page 15177]]
Board experts not affiliated with the affected Reserve Bank review the
matter at both appeals levels.
In addition to removing one level of appeal, the proposal addresses
a timing conflict between the PCA framework under section 38 of the
Federal Deposit Insurance Act and the Board's existing appeals
process.\3\ The PCA framework requires that, no later than 90 days
after an insured depository institution becomes critically
undercapitalized, the appropriate Federal banking agency must either
appoint a receiver for the institution or take such other action that
the agency determines, with the concurrence of the Federal Deposit
Insurance Corporation (``FDIC''), would better achieve the purposes of
PCA.\4\ Although the banking agency's decision to appoint a receiver
for a critically undercapitalized institution is not appealable under
the Riegle Act, some material supervisory determinations (such as
reclassifications of loans) may cause an institution to become
critically undercapitalized and, unless reversed, result in
receivership.
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\3\ 12 U.S.C. 1831o.
\4\ See 12 U.S.C. 1831o.
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The proposal described an accelerated process for appeals that
relate to or cause an institution to become critically undercapitalized
under the PCA framework in order to better assure that a review of such
an adverse material supervisory determination occurs within the PCA
time frame of 90 days. The goal of this accelerated process is to
provide a thorough, adequate, and independent review of the material
supervisory determination that places the institution at risk of
receivership. Notwithstanding the proposal's timeline, situations may
arise that would prevent an appeal from being completed before the PCA
framework requires a receivership to be imposed. In these situations,
the existence of an outstanding appeal would not prevent the Board from
meeting its statutorily mandated obligation under the PCA framework to
appoint a receiver, in which case an appeal would become moot.
One commenter suggested that an institution be permitted to seek a
30-day extension of the time to file an initial appeal or a final
appeal. Given that the appeals process is intended to be efficient and
provide a swift resolution of disputes, in most circumstances
extensions will not be warranted. Nevertheless, the final appeals
process has been revised to permit an institution to seek reasonable
extensions of time to file the initial appeal or the final appeal for
good cause, which may be granted in the discretion of the appropriate
division director in consultation with the Board's General Counsel or
his designee. Relatedly, there may also be situations where, given the
facts, circumstances, or complexity of an appeal, the final review
panel may need additional time to consider the matter. The final
guidelines have been modified, therefore, to permit the final review
panel to grant itself an extension in appropriate circumstances.
One commenter further suggested that the proposal be clarified to
include more detail regarding how deadlines are calculated. The final
appeals process has been revised to clarify that days mean calendar
days, and that when a deadline falls on a weekend or federal holiday,
the deadline moves to the following business day.
Contents of Appeal, Record, and Scope
The proposal provided that prior to a material supervisory
determination being made, it is expected that the institution will have
provided all available information it believes to be relevant to the
examination staff to assist them in making the determination. That is,
generally, the initial review panel should be able to reach its
decision based on the facts and data developed during the examination
process. To clarify this point, the final appeals process has been
revised to state that, absent good cause, as determined in the
discretion of the initial review panel, any facts or data submitted by
the institution in connection with the appeal will be limited to those
which were made available to examination staff prior to the date on
which the written material supervisory determination was delivered to
the institution. However, as noted in the proposal, the initial review
panel may, in its discretion, conduct additional fact-finding.
One commenter suggested that the final review panel be permitted to
review evidence that was not available at the time of the initial
review panel's consideration of the appeal. Given the final review
panel's more circumscribed and deferential review, the final review
panel will be confined to the record before it. Accordingly, the
institution should take all necessary steps to insure that all relevant
information has been presented to the initial review panel in a timely
manner.
Initial Review Panel
The proposal provided that the initial review panel be composed of
three Reserve Bank employees. For certain matters, however, the panel
may benefit from the specialized expertise of a Board employee to aid
evaluation of the appropriateness of the material supervisory
determination. Accordingly, the final appeals process has been revised
to allow the division director, in appropriate circumstances, to
appoint a Board employee as one of the three members of the initial
review panel.
Meetings With Appeals Panels
The proposal provided that the initial review panel and the final
review panel could choose to meet with the appealing institution. One
commenter suggested that the institution be permitted to meet with each
review panel in all instances in which an institution timely requests
such a meeting. The final appeals process has been revised to provide
that the initial review panel must schedule a meeting with the
institution if requested by the institution. The initial review panel
should consult with the institution with respect to the selection of
the time and date of the meeting; however, the final decision of a time
and date for the informal meeting remains at the discretion of the
initial review panel. Even if the institution does not request a
meeting with the initial review panel, the panel retains the discretion
to schedule such a meeting. Given the more circumscribed review
conducted by the final review panel and the tighter deadlines for
issuing the decision, whether an informal meeting with the institution
should occur is left to the discretion of the final review panel.
Standard of Review
The proposal described specific standards of review to be applied
at each level of appeal. The panel that reviews the initial appeal
would make its own supervisory determination and not defer to the
judgment of the Reserve Bank staff that made the material supervisory
determination. Under this standard, the panel would have the discretion
to rely on examination workpapers and other materials developed by
Federal Reserve staff during an examination or materials submitted by
the institution if it determines it is reasonable to do so. In
addition, the standard was clarified to reflect that the support
provided by the record is to be evaluated for a preponderance of the
evidence. As noted by a few commenters, this approach may be considered
a de novo standard of review.
The proposal provided that the final review panel will consider
whether the decision of the initial review panel is reasonable. One
commenter suggested that the final review panel standard of review
should be de novo. The role of
[[Page 15178]]
the final review panel in the proposal is to serve a role analogous to
that of an appeals court that corrects errors in the decision made by
the initial review panel. Accordingly, a de novo standard is not
appropriate given the panel's function.
Notice of Decision
One commenter suggested that the appealing institution be provided
the record on appeal from the initial review panel. In many instances,
the record will include the voluminous and confidential examination
work papers, the majority of which are not pertinent to the
determination being appealed and not appropriate for dissemination to
the appealing institution. The final appeals process has been revised
to require that the initial review panel be precise in identifying the
information upon which it relied in reaching its conclusion, and that
it promptly provide such information to the institution upon the
institution's request to the extent permitted by law.
Final Decisionmaker
The proposal provided that if the appealing institution continues
to have concerns regarding the material supervisory determination
following the initial review panel's decision, the appealing
institution may request a subsequent final review conducted by a review
panel composed primarily of Board staff. One commenter suggested that
the final decision should rest with the Ombudsman or a Governor. The
revised policy, however, relies on the decisionmakers having
specialized subject matter expertise. Moreover, the policy permits
either the institution or Federal Reserve personnel to request that the
Ombudsman observe the appeals process.
Publication of Decisions
In order to maximize transparency, the proposal provided that the
decision of a final review panel would be made public with appropriate
redactions. Several commenters asked that any information that could
potentially reveal the identity of the appealing institution be
redacted from published decisions and summaries of decisions. Redaction
of identifying information will generally be appropriate, particularly
when disclosure would cause harm to the institution. Moreover, where
redaction would be inadequate to ensure the confidentiality of the
appealing institution, the proposal provided the Board the discretion
to publish a summary of the decision instead. The final appeals process
retains discretion for the Board to determine what types of redactions
are appropriate or if a summary should be published instead. Several
commenters requested that a centralized location on the Board's website
be dedicated to published decisions. The published decisions will be
made available on the Board's public website in a findable, searchable
manner. One commenter further suggested that redacted initial review
panel decisions also be published. The majority of initial review panel
members are not Board staff or policymakers, and accordingly, their
decisions should not be available for citation or precedent.
Ombudsman Policy
The Board finalized a revised Ombudsman policy in conjunction with
finalizing the changes to the appeals process. Currently, the Ombudsman
receives complaints related to the Federal Reserve's supervisory
process, which may include an appeal request. The revisions to the
policy formalize the Ombudsman's role with respect to appeals and
provide that the Ombudsman may attend meetings or deliberations
relating to the appeal as an observer, if requested by the institution
or Federal Reserve personnel. In addition, the revisions formalize the
Ombudsman's role as the decisionmaker with respect to claims of
retaliation. The revisions also emphasize the Ombudsman's availability
to facilitate the informal resolution of concerns that could ultimately
lead to formal appeals and provide for tracking of complaints made by
regulated institutions. Finally, the Board has updated the policy with
respect to the Ombudsman's role in consumer complaint appeals. The
revisions add detail regarding the consumer complaint appeal process
and align current practices with the policy. In particular, the policy
now explains with whom a consumer may file an appeal, who reviews
appeals, and how the Ombudsman collaborates with other Board staff on
certain appeals.
One commenter suggested that the Board should articulate procedures
for educating examiners about the types of actions that would
constitute retaliation and the penalties that would result for
retaliation. This comment is well taken, but the Ombudsman policy is
not the appropriate place for it to be addressed. The Board expects to
take this comment into consideration as it develops training materials
for its examiners.
Similarly, a commenter suggested that the Ombudsman should be
empowered to decide whether an examiner should be excluded from future
examinations of the institution where a finding has been made that the
examiner retaliated against that institution. The Ombudsman's role is
to investigate claims of retaliation, and to make factual findings. The
Ombudsman may also recommend to the appropriate division director(s)
that the next examination of the institution that may lead to a
material supervisory determination exclude personnel involved in the
claim of retaliation. However, the ultimate responsibility for the
assignment of examiners correctly rests with the appropriate division
director at the Board.
Other Issues
In addition to the comments received regarding the appeals process
and Ombudsman policy, the Board also received several comments
unrelated to either proposal. First, one commenter suggested that the
Board examine why the internal appeals process has historically not
been used by Board regulated institutions. One of the Board's goals in
putting revisions to the appeals process out for public comment was to
identify changes that would make the process more useful and
approachable for institutions. The Board encourages institutions to
make use of the revised process.
Next, a commenter suggested that the Board suspend the supervisory
framework over insurance savings and loan holding companies pending a
complete review of how best to supervise such institutions. This
comment is outside the scope of the appeals process and Ombudsman
policy and will not be addressed here. Relatedly, a commenter asked
that the Board provide institutions with regular interim updates by on-
site examiners and provide drafts of ratings determinations before
formally issuing ratings letters. These comments are also outside the
scope of the appeals process and Ombudsman policy; however, the Board
believes that on-site examiners ordinarily engage in updates and
communications throughout the course of the examination.
Process for Appeals of Material Supervisory Determinations
The Board is committed to maintaining an independent, intra-agency
process to review appeals of material supervisory determinations that
complies with section 309 of the Riegle Community Development and
Regulatory Improvement Act of 1994, 12 U.S.C. 4806.
The purpose of this document is to establish a comprehensive
appellate process for material supervisory determinations. In order to
ensure that institutions will be granted the same
[[Page 15179]]
appellant rights regardless of the Federal Reserve district in which
they reside, appeals will be administered using procedures that are
consistent with this process. This process includes an accelerated
review process to improve its alignment with the Prompt Corrective
Action (``PCA'') framework under section 38 of the Federal Deposit
Insurance Act (``FDI Act''.)
A. In General
Any institution about which the Federal Reserve makes a written
material supervisory determination is eligible to utilize the appeals
process. An eligible institution includes a state member bank, bank
holding company and its nonbank subsidiaries, U.S. agency or branch of
a foreign bank, Edge and agreement corporation, savings and loan
holding company, third party electronic data processing servicer,
systemically important nonbanking financial organization identified by
the Financial Stability Oversight Council, and any other entity
examined or inspected by the Federal Reserve.
An appeal under this process may be made of any written material
supervisory determination. A ``material supervisory determination''
includes, but is not limited to, any material determination relating to
examination or inspection composite ratings, material examination or
inspection component ratings, the adequacy of loan loss reserves and/or
capital, significant loan classification, accounting interpretation,
Matters Requiring Attention (``MRAs''), Matters Requiring Immediate
Attention (``MRIAs''), Community Reinvestment Act ratings (including
component ratings), and consumer compliance ratings. The term does not
include any supervisory determination for which an independent right of
appeal exists or a referral to another government agency. Excluded
actions include, for example, PCA directives issued pursuant to section
38 of the FDI Act; an action to impose administrative enforcement
actions under the FDI Act, the Home Owners' Loan Act of 1933, the Dodd-
Frank Wall Street Reform and Consumer Protection Act, the Bank Holding
Company Act of 1956 (``BHC Act'') or other applicable act; a capital
directive; an order related to approval or denial of a transaction
issued pursuant to section 3 or 4 of the BHC Act; written notice of a
referral to the Attorney General pursuant to the Equal Credit
Opportunity Act (``ECOA'') or a notice to the Secretary of Housing and
Urban Development for violations of the ECOA or the Fair Housing Act;
and determinations made under the Shared National Credit Program.
B. General Procedures for Appealing a Material Supervisory
Determination
In general, the appeals process is an informal process that is not
subject to the adjudicative provisions of the Administrative Procedures
Act (5 U.S.C. 554, 556-557). An appeal of a material supervisory
determination shall be filed and considered pursuant to the following
procedures:
(1) Authorization to File. Any appeal must be approved by the board
of directors of the eligible institution or by its senior management in
consultation with its board of directors. Senior management is defined
as the core group of individuals directly accountable to the board of
directors for the sound and prudent day-to-day management of the firm,
or in the case of a U.S. agency or branch of a foreign bank,
responsible for the bank's U.S. operations. Senior management shall
inform the board of directors of the substance of the appeal before
filing the appeal and shall keep the board of directors informed of the
status of the appeal.
(2) Timelines and Contents. The institution must file the appeal in
writing with the Board's Ombudsman within 30 calendar days of the
earlier of the date the material supervisory determination was sent
electronically, the date the institution received the written
determination, or the date the Reserve Bank received confirmation that
the institution received the determination, with a copy to the officer
in charge of supervision at the appropriate Reserve Bank. When the
deadline for filing an appeal falls on a weekend or federal holiday,
the deadline for the appeal shall be the next business day. The
institution may file a written request for an extension of the time to
file an appeal with the Ombudsman, which request shall state good cause
for granting the extension. Such request shall be granted in the sole
discretion of the director of the appropriate division of the Board in
consultation with the Board's General Counsel or his designee. The
appeal must include a clear and complete statement of all relevant
facts and issues, as well as all arguments that the institution wishes
to present, and must include all relevant and material documents that
the institution wishes to be considered. Prior to a material
supervisory determination being made, it is expected that the
institution will have provided all available information it believes to
be relevant to the examination staff to assist them in making the
determination. Accordingly, absent good cause, as determined in the
discretion of the initial review panel, any facts or data submitted by
the institution in connection with the appeal shall be limited to those
that were made available to examination staff prior to the date on
which the written material supervisory determination was delivered to
the institution.
(3) Distribution of Appeal. After receipt of a request for an
appeal, the Board's Ombudsman shall promptly notify the director of the
appropriate division of the Board and the Board's General Counsel of
the appeal.
(4) Initial Review Panel. Within ten calendar days of receipt of a
timely appeal, the director of the appropriate division of the Board or
an officer designated by the appropriate division director must appoint
three Reserve Bank employees to serve as an initial review panel to
consider the appeal and an attorney to advise the initial review panel
in the exercise of its responsibilities. In appropriate circumstances,
the appropriate division director may appoint a Board employee as one
of the three members of the initial review panel. The members of the
initial review panel and the appointed attorney must not have been
substantively involved in any matter at issue; must not directly or
indirectly report to any person(s) who made the material supervisory
determination under review; must not be employed by the Reserve Bank
that made the material supervisory determination under review; and must
have relevant experience to contribute to the review of the material
supervisory determination. An individual shall be considered to have
been substantively involved in a material supervisory determination if
the individual was personally consulted regarding the issue being
determined and provided guidance regarding how it should be resolved.
The initial review panel shall determine all procedural issues
regarding the initial review.
(5) Initial Review Meeting. The initial review panel shall conduct
an informal appeal meeting if the institution requests such a meeting
at the time it files its appeal or if the panel, in its discretion,
decides to hold such a meeting. If such a meeting is to be conducted,
the panel should, in consultation with the institution, schedule a
meeting for a date that is no later than 21 calendar days after the
date the appeal is received. The panel shall notify the institution in
writing of the date, time, and place of the meeting. The institution
may appear at the appeal meeting personally or through counsel to make
an oral presentation to the panel. Panel members may ask
[[Page 15180]]
questions of any person participating in the meeting. The institution
and the Reserve Bank may not cross-examine persons participating in the
meeting. A verbatim transcript of the meeting may be taken if the
institution requests a transcript and agrees to pay all expenses, and
if the initial review panel determines that a transcript would assist
the panel in carrying out its responsibilities. The meeting provided
under this process is not governed by formal rules of evidence. No
formal discovery is required or permitted. The initial review panel may
make any rulings reasonably necessary to facilitate the effective and
efficient operation of the meeting.
(6) Record. The record of the appeal shall at a minimum include the
original material supervisory determination being appealed, the
materials submitted by the institution in connection with the appeal,
and the materials identified by Federal Reserve staff as relevant to
the material supervisory determination being appealed, including
workpapers. In addition, the initial review panel may, in its
discretion, conduct additional fact finding. For example, the initial
review panel may supplement the record by soliciting the views of
outside parties, including staff from the Board, the Reserve Banks,
other supervisory agencies (for example, in cases of joint examinations
or inspections), and the Federal Reserve staff who participated in
making the material supervisory determination being appealed. The
entire record of the appeal, including the decision of the initial
review panel and any meeting transcripts or material(s) submitted in
connection with any subsequent final review, shall be considered
confidential supervisory information of the Board.
(7) Standard of Review Applied by Initial Review Panel. The initial
review panel shall conduct a review of the material supervisory
determination on appeal. The panel must consider whether the Reserve
Bank's material supervisory determination is consistent with applicable
laws, regulations, and policy, and supported by a preponderance of the
evidence in the record. In doing so, the panel shall make its own
supervisory determination and shall not defer to the judgment of the
Reserve Bank staff that made the material supervisory determination
though it may rely on any examination workpapers developed by the
Reserve Bank or materials submitted by the institution if it determines
it is reasonable to do so.
(8) Notice of Decision. Within 45 calendar days after the date the
appeal is received, the initial review panel shall provide written
notice of its decision to the senior management and the board of
directors of the institution. A copy of the decision will be provided
to the director of the appropriate division of the Board, the officer
in charge of supervision at the appropriate Reserve Bank, and the
Board's Ombudsman. The notice of decision shall contain a statement of
the basis for the initial review panel's decision to continue,
terminate, or otherwise modify the material supervisory
determination(s) at issue or to remand consideration of the material
supervisory determination at issue to the examiners that made the
determination to allow them to consider additional evidence presented
in connection with the appeal. The notice of decision shall identify
the information upon which the panel relied in reaching its conclusion,
and the panel shall promptly provide that information to the
institution upon the institution's request to the extent permitted by
law. Such request must be made within seven calendar days of receipt of
the notice of decision. The notice of decision shall also indicate that
the institution may request a final review as set forth in this subpart
by filing a written request with the Board's Ombudsman. The initial
review panel may extend the period for issuing a decision by up to 30
calendar days if the panel determines that the record is incomplete and
additional fact-finding is necessary for the panel to issue a decision.
(9) Use of Confidential Supervisory Information. If the Reserve
Bank or the Board has confidential supervisory information from another
regulated institution that is pertinent to the appeal, they may elect
to use that information, provided that the information is entered into
the record for the appeal and provided to the appealing institution,
subject to limitations on disclosure, including those imposed by the
Board's applicable regulations,\5\ and redaction of all information not
relevant to the appeal.
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\5\ See 12 CFR 261.20.
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(10) Request for Final Review. Within 14 calendar days after notice
of decision by the initial review panel, the institution, at the
direction of its board of directors or senior management in
consultation with the board of directors, may appeal that decision to a
final review panel by filing a written request for final review with
the Board's Ombudsman, with a copy to the officer in charge of
supervision at the appropriate Reserve Bank. Senior management shall
inform the board of directors of the substance of the appeal before
filing the appeal and shall keep the board of directors informed of the
status of the appeal. The request for final review must state all the
reasons, legal and factual, the institution disagrees with the initial
review panel's decision. The institution may file a written request for
an extension of the time to file an appeal with the Ombudsman, which
request shall state good cause for granting the extension. The decision
to grant such a request shall be in the sole discretion of the director
of the appropriate division of the Board in consultation with the
Board's General Counsel or his designee.
(11) Waiver of Final Review. Failure to timely request final review
in a manner consistent with this process shall constitute a waiver of
the opportunity for final review, and the decision of the initial
review panel shall constitute a final and unappealable material
supervisory determination.
(12) Distribution of Final Review Request. After receipt of a
request for final review, the Board's Ombudsman shall promptly notify
the director of the appropriate division of the Board and the Board's
General Counsel of the request for final review.
(13) Final Review Panel. When an institution files a request for
final review, the director of the appropriate division of the Board
shall promptly appoint three individuals to serve as a final review
panel to permit completion of the appeal within the applicable period.
The final review panel shall include at least two Board employees, at
least one of whom must be an officer of the Board at the level of
associate director or higher. The Board's General Counsel shall appoint
an attorney to advise the final review panel in the exercise of its
responsibilities. The members of the final review panel and the
appointed attorney must not be employed by the Reserve Bank that made
the material supervisory determination under review; must not have been
members of the initial review panel; and must not have been personally
consulted regarding the issue being determined and provided guidance
regarding how it should be resolved, or directly or indirectly report
to the person(s) who made the material supervisory determination under
review. The final review panel shall determine all procedural issues
regarding the final review.
(14) Final Review Meeting. The final review panel may determine in
its discretion to have an informal appeal meeting at which a
representative of the institution or counsel may appear
[[Page 15181]]
personally to make an oral presentation to the panel. No facts may be
introduced in this meeting that are not contained in the record upon
which the initial review panel made its decision. In the event the
panel decides to have a meeting with the appealing institution, panel
members may ask questions of any person participating in the meeting.
The institution may not cross-examine persons participating in the
meeting. A verbatim transcript of the meeting may be taken at the cost
of the Board if the final review panel determines that a transcript
would assist the panel in carrying out its responsibilities. A meeting
provided under this process is not governed by formal rules of
evidence. No formal discovery is required or permitted. The final
review panel may make any procedural rulings reasonably necessary to
facilitate the effective and efficient operation of the meeting.
(15) Scope of Final Review. The scope of the final review shall be
confined to the record upon which the initial review panel made its
decision.
(16) Standard of Review of Final Review. The final review panel
shall determine whether the decision of the initial review panel is
reasonable. In reaching this determination, the panel should consider
whether the decision was based on a consideration of the applicable
law, regulations, and policy, and whether there has been a clear error
of judgment. The final review panel may affirm the decision of the
initial review panel even if it is possible to draw a contrary
conclusion from the record presented on appeal.
(17) Notice of Final Review Decision. Within 21 calendar days of
the filing of a request for final review, the director of the
appropriate division of the Board shall provide written notice of the
decision of the final review panel to the senior management and the
board of directors of the institution. The final review panel may
continue, terminate, or otherwise modify the material supervisory
determination(s) at issue or remand consideration of the material
supervisory determination at issue to the examiners who made the
determination to allow them to consider additional evidence presented
in connection with the appeal. The notice of decision shall contain a
statement of the basis for the final review panel's decision. A copy of
the decision will be provided to the director of the appropriate
division of the Board, the officer in charge of supervision at the
appropriate Reserve Bank, and the Board's Ombudsman. A copy of the
decision will be published on the Board's public website as soon as
practicable, and the published decision will be redacted to avoid
disclosure of exempt information. In cases in which redaction is deemed
insufficient to prevent improper disclosure, the published decision may
be presented in summary form. The final review panel may extend the
period for issuing a decision by up to 30 calendar days if the panel
determines that, based on the facts and circumstances of the appeal, an
extension is appropriate.
(18) Ombudsman Participation. The Board's Ombudsman may attend, as
an observer, meetings or deliberations relating to the appeal at either
level if requested by either the institution or System personnel. The
Ombudsman will not have substantive involvement in or act as a
decision-maker with respect to the appeal.
C. Expedited Procedures for Appealing a Material Supervisory
Determination
When a material supervisory determination relates to or causes an
institution to become critically undercapitalized, as defined by
section 38 of the FDI Act, the review of any appeal of that supervisory
determination will be processed on an expedited basis.
Notwithstanding any other provision in this process, a matter
processed under expedited review will be subject to the same policies
that govern all appeals except that the initial review panel will issue
a decision within 35 calendar days following the date the appeal is
received (such period may be extended by up to an additional 7 calendar
days if the initial review panel decides that such time is required to
supplement the record and to consider any additional information
received), the institution shall have 7 days to file an appeal of the
initial review panel's decision, and the final review panel will issue
a decision within 10 calendar days.
D. Effect of Appeal on Material Supervisory Determinations
A material supervisory determination shall remain in effect while
under appeal unless and until such time as it is modified or terminated
through the appeals process. An appeal does not prevent or suspend the
Federal Reserve or any other appropriate agency from taking any
supervisory or enforcement action-either formal or informal-it deems
appropriate to discharge the agency's supervisory responsibilities. In
such cases, the rights of appeal provided for in the statutes and
regulations concerning those actions shall govern.
In addition, an appeal does not prevent or suspend the operation of
the PCA framework under section 38 of the FDI Act, prevent or suspend
an appropriate authority from appointing a receiver for the institution
or otherwise causing the closure of an institution, or prevent or
suspend an appropriate authority from taking any other action under the
PCA framework. If the institution is placed into receivership while an
appeal is outstanding, the appeal will be considered moot and will not
be completed.
E. Safeguards Against Retaliation
Neither the Federal Reserve nor any employee of the Federal Reserve
may retaliate against an institution or person, including based on the
filing or outcome of an appeal under this process. In accordance with
longstanding Federal Reserve practice, the appeals framework is
intended to foster an environment where concerns and issues may be
freely and openly discussed.
Each Reserve Bank shall provide institutions with notice of the
Board's anti-retaliation policy in connection with each Federal Reserve
led examination.
An institution that believes that it has suffered retaliation or
any other form of unfair treatment is encouraged to contact the
appropriate Reserve Bank, and may file a claim of retaliation with the
Board's Ombudsman. The Ombudsman may attempt to resolve a claim of
retaliation informally by engaging in discussions with the concerned
institution and the appropriate Board or Reserve Bank staff.
Nothing in this guidance is intended to prevent the Ombudsman from
initiating a factual inquiry into alleged retaliation at any time. The
Ombudsman may initiate a factual inquiry into a claim of retaliation,
at any time, by providing notice to the director of the appropriate
division of the Board and appropriate Board committee, and the officer
in charge of supervision at the appropriate Reserve Bank. As part of
the inquiry, the Ombudsman may collect and review documents, interview
witnesses, and consult Board and Reserve Bank staff with subject matter
expertise. The Ombudsman also may request that the director of the
appropriate division of the Board authorize or assign such additional
resources as necessary to assist the Ombudsman in fully reviewing the
matter.
Upon the completion of a factual inquiry into a claim of
retaliation, if the Ombudsman concludes that retaliation has occurred,
the Ombudsman will forward the claim of retaliation, along with the
Ombudsman's factual findings to the director of the appropriate
[[Page 15182]]
division of the Board. These officials will take appropriate action
consistent with the Board's or relevant Reserve Bank's policies and
procedures to resolve the matter. In addition, to prevent future
retaliation for an appeal, the Ombudsman may recommend to the director
of the appropriate division of the Board that the next examination of
the institution or review that may lead to a material supervisory
determination exclude personnel involved in the claim of retaliation.
The division director(s) will make the final decision as to whether any
examination staff should be excluded.
The Board's Ombudsman will contact institutions within six months
after a material supervisory determination appeal has been decided to
inquire whether the institution believes retaliation has occurred.
F. Availability of Procedures
The Federal Reserve, through the Board and Reserve Banks, shall
make this process readily available on its public website and to any
member of the public who requests it.
Ombudsman for the Federal Reserve System
Policy Statement
Section 309 of the Riegle Community Development and Regulatory
Improvement Act of 1994, 12 U.S.C. 4806, requires each of the Federal
banking agencies to appoint an Ombudsman. Section 309 provides that the
Ombudsman:
(1) Is to act as a liaison between the agency and any affected
person with respect to any problem such party may have in dealing
with the agency resulting from the regulatory activities of the
agency; and
(2) Is to assure that safeguards exist to encourage complainants
to come forward and preserve confidentiality.
Mission of the Ombudsman. The Ombudsman is charged with performing
three major functions: (1) Serving as a facilitator and moderator for
the fair and timely resolution of complaints related to the Federal
Reserve System's regulatory activities; (2) reporting to the Board on
issues that are likely to have a significant impact on the Federal
Reserve System's missions, activities, or reputation that arise from
the Ombudsman's review of complaints, such as patterns of issues that
occur in multiple complaints; and (3) receiving, reviewing, and
deciding claims of retaliatory conduct by Federal Reserve System staff.
The Ombudsman also serves as the initial recipient for appeals of
material supervisory determinations and plays a role in resolving
appeals of some consumer complaints. In addition, the Ombudsman ensures
that safeguards exist to encourage complainants to come forward and to
protect confidentiality.
Serving as a Complaint Facilitator. The Ombudsman assists
institutions with issues and questions related to Reserve Bank or Board
regulatory activities. In doing so, the Ombudsman shall operate
independently of the supervisory process to the extent necessary to
ensure that appropriate safeguards exist to encourage complainants to
come forward and preserve confidentiality.
In situations where the Board has not established a process for
addressing a certain type of question or complaint, the Ombudsman is
available to facilitate the resolution of the question or complaint.
Although the Ombudsman does not have decision-making authority
regarding any substantive matters, including supervisory determinations
and regulatory action (other than for retaliation claims), the
Ombudsman is available to assist institutions, and particularly
community banks, in locating the correct Federal Reserve System staff
person to address or resolve such a question or complaint and may
coordinate meetings and facilitate discussions between the institution
and System staff, including senior officials, as necessary. In order to
facilitate this process, the Ombudsman may investigate the situation in
order to identify the relevant facts and circumstances. The Ombudsman
may also participate in meetings or discussions related to the matter
if requested by either the institution or System staff, and may require
updates from System staff, as appropriate, until the matter is
resolved. If the Ombudsman believes such a complaint has not been
satisfactorily addressed, the Ombudsman may raise the matter with the
appropriate division director or Board committee, as appropriate.
When an issue is brought to the attention of the Ombudsman for
which the Board's rules or procedures provide an avenue of appeal or
another appropriate forum for resolution, the Ombudsman will explain
the process to the complaining party, and direct the party to the
appropriate appeals process or forum for the complaint.\6\ In addition,
the Ombudsman is also available to facilitate informal discussions
between a potential appellant and the appropriate Reserve Bank or Board
staff in order to explore solutions before an appeal is filed. Such
discussions do not stay or otherwise alter any of the deadlines under
the Board's rules or procedures.
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\6\ For example, the Ombudsman may explain some of the existing
mechanisms for resolutions of complaints, such as: Material
supervisory determinations pursuant to section 309(a) of the Riegle
Act; actions delegated to the Reserve Banks or Board staff pursuant
to 12 CFR part 265; prompt corrective action directives under
section 38 of the FDI Act; denials or partial denials of Freedom of
Information or Privacy Act requests; issuance of capital directives
pursuant to 12 CFR 263.80-263.85; decisions with respect to
applications; and matters within the jurisdiction of the Board's
Inspector General or Federal or State investigatory or prosecutorial
authorities.
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The Ombudsman will serve as the initial recipient for an appeal of
a material supervisory determination and may attend, as an observer,
meetings or deliberations relating to the appeal if requested by either
the institution or System personnel. In any event, the Ombudsman will
not have any substantive involvement in or act as a decision-maker with
respect to the appeal.
Providing Feedback on Patterns of Issues. The Ombudsman is in a
unique position to identify and report patterns of issues arising from
complaints related to Reserve Bank or Board regulatory activities. The
Ombudsman will track inquiries and complaints based on relevant
characteristics, such as geographic location, scope, policy
implications, and final disposition, to help identify any such trends,
including trends that implicate differently sized institutions
disproportionately. This tracking will be conducted in a manner
designed to preserve confidentiality of the complainant to the maximum
extent possible. As appropriate, the Ombudsman will report findings of
patterns of issues to the appropriate Board committee or division
director and Reserve Bank or Board staff. The Ombudsman will also
report any issue stemming from a complaint that is likely to have a
significant impact on the Federal Reserve System's mission, activities,
or reputation.
Retaliation Claims by Supervised Persons. The Board does not
tolerate retaliation by Federal Reserve System staff against a
supervised institution or its employees (``supervised persons'').
Retaliation is defined as any action or decision by Reserve Bank or
Board staff that causes a supervised person to be treated differently
or more harshly than other similarly situated institutions because the
supervised person attempted to resolve a complaint by filing an appeal
of a material supervisory determination or utilized any other Board
mechanisms for resolving complaints. Retaliation includes, but is not
limited to, delaying or denying action that might benefit a
[[Page 15183]]
supervised person without a sound supervisory reason or subjecting a
supervised institution to heightened examination standards without a
sound supervisory reason.
The Ombudsman is authorized to receive, review, and determine the
merits of complaints of retaliatory conduct by Reserve Bank or Board
staff. The Ombudsman may attempt to resolve retaliation claims
informally by engaging in discussions with the concerned supervised
person and the appropriate Board or Reserve Bank staff. If a complaint
cannot be resolved informally, the Ombudsman may initiate a full
investigation into the underlying facts and circumstances.
To commence a factual investigation of a complaint of retaliatory
conduct, the Ombudsman should provide written notice to the appropriate
Board committee and division director and the appropriate Reserve Bank
officer in charge of supervision. As part of the investigation, the
Ombudsman may, among other things, collect and review documents,
interview witnesses, and seek any other relevant information. The
Ombudsman may also consult Board and Reserve Bank staff with subject
matter expertise. Where necessary, the appropriate Board committee or
division director may authorize or assign such additional resources as
may be needed to assist the Ombudsman in fully reviewing the matter.
Upon completion of the factual investigation of a complaint of
retaliatory conduct, the Ombudsman will decide whether a member of
Federal Reserve System staff retaliated, as defined above. The
Ombudsman will report this determination to the appropriate Board
committee or Governor and division director and the appropriate Reserve
Bank officer in charge of supervision and may make recommendations for
resolution of the matter to those parties. In addition, to prevent
future retaliation for an appeal, the Ombudsman may recommend to the
appropriate division director(s) that the next examination of the
institution or review that may lead to a material supervisory
determination exclude personnel involved in the claim of retaliation.
The division director(s) will make the final decision as to whether any
examination staff should be excluded. However, the Ombudsman shall not
make recommendations regarding disciplinary action against a Federal
Reserve System staff member. The appropriate staff will consider
further action consistent with the Board's and relevant Reserve Bank's
policies and procedures. The Ombudsman's determination regarding
retaliation will be communicated in writing to the supervised person.
To further ensure that supervised persons are not subjected to
retaliation, as defined above, the Ombudsman will contact a supervised
institution within six months after an appeal has been decided to
inquire whether the institution believes retaliation occurred. Where
possible, the Ombudsman will also contact the institution after the
next examination following an appeal. In the event an institution
complains of retaliation, the Ombudsman will initiate the process
outlined above to informally review the matter or initiate a factual
investigation.
Consumer Complaints and Appeals. Independent of the Ombudsman
function, the Federal Reserve System operates a consumer complaint and
inquiry program to assist members of the public who are experiencing
problems with their financial institution. If the Ombudsman receives a
consumer complaint directly, the Ombudsman will refer the complaint to
the Board's Division of Consumer and Community Affairs (``DCCA'') to
determine handling and send appropriate consumer complaints to the
Federal Reserve Consumer Help Center (``FRCH'') for processing.
A request for an independent review of a consumer complaint
previously investigated by a Reserve Bank is treated as an appeal.
Consumers should be advised that they can file an appeal through FRCH
or with the Ombudsman if the consumer requests confidential treatment
of the appeal or prefers that the Ombudsman handle the appeal.
If an appeal is received by the Ombudsman, he or she will consult
with DCCA to determine who will handle the appeal, unless the consumer
has requested confidential treatment or that the Ombudsman's Office
handle the appeal. In many instances, DCCA will be responsible for
investigating and responding to the appeal. For the appeals referred to
DCCA by the Ombudsman, DCCA will consult with the Ombudsman during the
appeal investigation to help ensure that the matter is fully and fairly
addressed and provide a final copy of the response letter to the
Ombudsman.
The Ombudsman handles appeals seeking further investigation of
DCCA's handling of an initial appeal, appeals where the consumer
requests confidential treatment, and appeals where the consumer
requests that the Ombudsman's Office handle the initial appeal. The
Ombudsman may handle other appeals, as determined in collaboration with
DCCA. The Ombudsman will send an acknowledgement letter for each appeal
it receives.
With respect to appeals seeking further investigation of DCCA's
handling of an initial appeal or where the consumer requests that the
Ombudsman handle the appeal, the Ombudsman will typically consult with
DCCA during the investigation. For appeals where the consumer requests
confidential treatment, the Ombudsman typically will not consult with
DCCA during the investigation.
For all appeals the Ombudsman handles, the Ombudsman will review
the matter. In doing so, the Ombudsman will collect and review the
complaint documents from DCCA and seek any other relevant information,
unless confidential treatment is requested. The Ombudsman may also
consult Board and Reserve Bank staff to discuss the details of the
previous complaint investigations. The Ombudsman is responsible for
responding to the complainant with its determination. As appropriate,
the Ombudsman will contact the appropriate Board division director and
Reserve Bank staff with feedback or concerns.
Safeguards. These policies, processes, and practices are intended
as safeguards to encourage complainants to come forward with issues or
complaints related to the Federal Reserve System's supervisory
activities.
To the extent possible, the Ombudsman will honor requests to keep
confidential the identity of a complaining party. It must be
recognized, however, that it may not be possible for the Ombudsman to
resolve certain complaints, including complaints of retaliation, if the
Ombudsman cannot disclose the identity of the complaining party to
other members of Federal Reserve staff.
Procedures. A party may contact the Ombudsman at any time regarding
concerns or issues resulting from the regulatory activities of the
Board or the Reserve Banks by calling 1-800-337-0429, by sending a fax
to 202-530-6208, by writing to the Office of the Ombudsman, Board of
Governors of the Federal Reserve System, Washington, DC 20551, or by
sending an email to [email protected].
By order of the Board of Governors of the Federal Reserve
System, March 12, 2020.
Ann Misback,
Secretary of the Board.
[FR Doc. 2020-05491 Filed 3-16-20; 8:45 am]
BILLING CODE 6210-01-P