OCC Leads Interagency Guidance on Compliance & Risk Management in Wake of Hurricane Milton

In response to the devastation caused by Hurricane Milton, the Office of the Comptroller of the Currency (OCC), along with the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board, Florida Office of Financial Regulation, and the National Credit Union Administration (NCUA), has issued comprehensive guidance aimed at supporting financial institutions. While this is a collaborative interagency effort, the OCC's involvement is particularly critical for national banks and federal savings associations. This article delves into the OCC’s guidance and examines its implications for compliance and risk management in the aftermath of the hurricane.

The OCC has adopted a more flexible approach to financial institutions affected by the hurricane. However, this flexibility comes with the caveat of heightened expectations, particularly in maintaining robust compliance and risk management practices. Institutions are encouraged to navigate this challenging period carefully while upholding the foundational principles of sound banking.

Lending & Credit Risk Management in Affected Areas

In alignment with the broader regulatory agencies, the OCC encourages financial institutions to work constructively with borrowers in regions impacted by Hurricane Milton. However, this cooperation is subject to stringent oversight, especially in lending and credit risk management.

First, the OCC supports prudent loan modification strategies, understanding that flexibility is required in such extraordinary circumstances. Although banks will not be criticized for offering modifications, the OCC emphasizes the importance of adhering to generally accepted accounting principles (GAAP). In particular, banks must carefully assess whether these modifications constitute troubled debt restructurings and ensure they maintain transparency in their financial reporting.

Additionally, the OCC underscores the need for continuous credit risk oversight, even amid the ongoing crisis. While institutions are encouraged to assist borrowers, they are expected to maintain rigorous monitoring of modified loans. This includes revisiting risk ratings and ensuring that any changes in the borrower’s financial status are accurately reflected in the institution's credit risk management framework.

Compliance with fair lending regulations remains a central concern for the OCC. Institutions must ensure that modified lending practices do not inadvertently violate these laws, with the expectation that future examinations will scrutinize these efforts. Therefore, banks must implement robust compliance checks to mitigate any potential risks associated with fair lending violations.

Operational Resilience & Managing Temporary Facilities

Recognizing the operational difficulties financial institutions face in disaster-stricken regions, the OCC has streamlined the approval process for temporary banking facilities. For national banks and federal savings associations, the OCC has committed to fast-tracking these requests to ensure continuity in services. However, this expedited process does not absolve institutions from maintaining adequate security protocols and operational controls. In fact, the OCC has reiterated that banks must incorporate these temporary solutions into their broader risk management strategies, particularly with regard to information security and business continuity planning.

In terms of regulatory compliance, the OCC requires that institutions promptly submit written notifications following initial telephone reports about their temporary facilities. Compliance officers within these banks are advised to establish processes that ensure the timely and accurate submission of these formal notifications, preventing delays that could lead to regulatory scrutiny.

The OCC has also signaled some flexibility in regulatory reporting, understanding that institutions may face difficulties in meeting deadlines due to the disruptive nature of Hurricane Milton. The agency encourages proactive communication from institutions anticipating challenges in adhering to reporting timelines. It’s crucial for banks to thoroughly document these communications to ensure there is a clear audit trail in the event of future examination inquiries.

While some flexibility is granted, the OCC stresses that this does not undermine the need for accuracy in regulatory reports. Institutions are advised to enhance their internal data validation processes during this period to safeguard the integrity of their reports. Moreover, the OCC expects that strong internal controls over financial reporting remain intact, despite the operational challenges posed by the disaster.

Compliance with the Community Reinvestment Act (CRA)

The OCC’s guidance extends to Community Reinvestment Act (CRA) compliance, highlighting how financial institutions can support recovery efforts while meeting their CRA obligations. Banks may receive CRA credit for community development activities that help revitalize or stabilize areas affected by the disaster. However, the OCC will expect detailed documentation of these activities, ensuring they qualify for CRA consideration.

Another notable aspect of the CRA guidance pertains to assessment areas. The OCC has clarified that CRA credit may be awarded for disaster recovery activities conducted within a bank’s assessment areas or in broader regions that include those areas. Institutions should therefore take a strategic approach to disaster recovery initiatives, ensuring they align with both community needs and regulatory expectations.

Risk Management in the Wake of Hurricane Milton

The OCC’s guidance, while providing necessary regulatory relief, underscores the importance of maintaining strong risk management practices across several dimensions:

• Credit Risk: Banks must continue monitoring credit quality closely, even as they work to assist borrowers. This includes adjusting risk ratings for modified loans to reflect the current financial environment.
• Operational Risk: With the establishment of temporary facilities and potential strains on daily operations, institutions are reminded of the importance of maintaining robust operational risk controls. These facilities must seamlessly integrate into the bank’s broader operational resilience strategy, particularly with regard to cybersecurity and operational continuity.
• Compliance Risk: The OCC will be closely monitoring how banks manage compliance risks under the relaxed guidelines. In particular, institutions are expected to uphold fair lending standards, maintain their Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) risk management programs, and ensure adherence to all consumer protection regulations.
• Reputational Risk: The OCC implicitly acknowledges that banks’ disaster recovery efforts carry reputational risks. Institutions must carefully consider how their actions are perceived by both the affected communities and their broader customer base, balancing regulatory flexibility with a continued commitment to ethical business practices.

Although the interagency guidance offers much-needed flexibility in the face of Hurricane Milton, OCC-supervised institutions are still expected to uphold strong risk management and compliance practices. Banks should prioritize documenting their decision-making processes, especially in how they implement the regulatory relief provided under this guidance.

Proactive communication with OCC supervisors will be essential. Institutions must be prepared to articulate how their actions not only align with the specifics of the guidance but also maintain the safety and soundness of the banking system. By demonstrating a risk-focused approach, banks can navigate the challenges posed by the disaster while ensuring they remain compliant with OCC expectations.

In the aftermath of Hurricane Milton, financial institutions must carefully balance regulatory relief with the ongoing responsibility to manage risk effectively. As the OCC continues to monitor recovery efforts, future examinations will likely focus on how banks responded to these challenges, highlighting the importance of maintaining strong governance, risk, and compliance standards during this critical period.

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