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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations
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supervisory criticisms.15 As such, the agencies reiterated that examiners will not base supervisory criticisms on a violation of or non-compliance with supervisory guidance. The agencies noted that, in some situations, examiners may reference including in writing supervisory guidance to provide examples of safe and sound conduct, appropriate consumer protection and risk management practices, and other actions for addressing compliance with laws or regulations. The agencies also reiterated that they will not issue an enforcement action on the basis of a violation of or non-compliance with supervisory guidance. The Proposed Rule reflected these clarifications.16
The Petition requested further that these supervisory criticisms should not include generic or conclusory references to safety and soundness. The agencies agreed that supervisory criticisms should continue to be specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions. Accordingly, the agencies included language reflecting this practice in the Proposed Rule.
The Petition also suggested that MRAs, as well as memoranda of understanding MOUs, examination downgrades, and any other formal examination mandate or sanction, should be based only on a violation of a statute, regulation, or order, including a demonstrably unsafe or unsound 15 The agencies use different terms to refer to supervisory actions that are similar to MRAs and Matters Requiring Immediate Attention MRIAs, including matters requiring board attention, documents of resolution, and supervisory recommendations.
16 The 2018 Statement contains the following sentence:
Examiners will not criticize a supervised financial institution for a violation of supervisory guidance.
2018 Statement at 2. As revised in the Proposed Rule, this sentence read as follows:
Examiners will not criticize including through the issuance of matters requiring attention, matters requiring immediate attention, matters requiring board attention, documents of resolution, and supervisory recommendations a supervised financial institution for, and agencies will not issue an enforcement action on the basis of, a violation of or non-compliance with supervisory guidance.
Proposed Rule emphasis added. As discussed infra in footnote 12, the Proposed Rule also removed the sentences in the 2018 Statement that referred to citation, which the Petition suggested had been confusing. These sentences were also removed to clarify that the focus of the Proposed Rule related to the use of guidance, not the standards for MRAs.

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practice. 17 As noted in the Proposed Rule, examiners all take steps to identify deficient practices before they rise to violations of law or regulation or before they constitute unsafe or unsound banking practices. The agencies stated that they continue to believe that early identification of deficient practices serves the interest of the public and of supervised institutions. Early identification protects the safety and soundness of banks and credit unions promotes consumer protection and reduces the costs and risk of deterioration of financial condition from deficient practices resulting in violations of laws or regulations, unsafe or unsound conditions, or unsafe or unsound practices. The Proposed Rule also noted that the agencies have different supervisory processes, including for issuing supervisory criticisms. For these reasons, the agencies did not propose revisions to their respective supervisory practices relating to supervisory criticisms.
The agencies also noted that the 2018
Statement was intended to focus on the appropriate use of supervisory guidance in the supervisory process, rather than the standards for supervisory criticisms.
To address any confusion concerning the scope of the 2018 Statement, the Proposed Rule removed two sentences from the 2018 Statement concerning grounds for citations and the handling of deficiencies that do not constitute violations of law.18
17 The Petition asserted that the federal banking agencies rely on 12 U.S.C. 1818b1 when issuing MRAs based on safety-and-soundness matters.
Through statutory examination and reporting authorities, Congress has conferred upon the agencies the authority to exercise visitorial powers with respect to supervised institutions. The Supreme Court has indicated support for a broad reading of the agencies visitorial powers. See, e.g., Cuomo v. Clearing House Assn L.L.C., 557 U.S. 519
2009; United States v. Gaubert, 499 U.S. 315
1991; and United States v. Philadelphia Nat.
Bank, 374 U.S. 321 1963. The visitorial powers facilitate early identification of supervisory concerns that may not rise to a violation of law, unsafe or unsound banking practice, or breach of fiduciary duty under 12 U.S.C. 1818. For credit unions, the corresponding provision is 12 U.S.C.
1786.
18 The following sentences from the 2018
Statement were not present in the Proposed Rule:
Rather, any citations will be for violations of law, regulation, or non-compliance with enforcement orders or other enforceable conditions. During examinations and other supervisory activities, examiners may identify unsafe or unsound practices or other deficiencies in risk management, including compliance risk management, or other areas that do not constitute violations of law or regulation.
2018 Statement at 2. The agencies did not intend these deletions to indicate a change in supervisory policy.

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Comments on the Proposed Rule A. NCUA Specific Comments The NCUA received 13 comments specifically focusing on credit union concerns about the Proposed Rule.
These commenters, which included national trade associations, state credit union leagues, and credit unions, generally supported he proposed rule.
Six comments were sent jointly to each regulator, two were from associations that provided similar comments to the CFPB, and five were comments provided solely to the NCUA. Topics discussed within the scope of the proposal are issues addressing the effect and applicability of the guidance. Issues beyond the scope of the rule addressed coordination with other Federal and State regulatory authorities, consistency in applying guidance, the examination cycle, the need for an appeals process, and the need for the Board to issue more guidance on various topics.
One commenter stated that each guidance statement from the NCUA
should include a notice that it is nonbinding. In addition, the commenter believed that the NCUA should add a notice to each guidance statement to support that credit unions are fully permitted to develop their own approaches to compliance issues, and that the examiners recommendations or suggestions do not eliminate the ability of the credit union to implement its specific solutions.
Aside from expressing general support for the rule, most credit union specific comments were beyond the scope of the rulemaking. Three commenters requested that the NCUA
improve coordination with respect to other Federal regulators, especially CFPB and FINCEN. Two commenters also requested that NCUA improve coordination with state supervisory authorities. The commenters stated that such enhanced coordination would help avoid overlapping or consecutive examinations, which they stated imposes operational burdens and utilizes critical staff member time. With respect to state guidance, two commenters stated that the NCUA must ensure state regulators understand how the NCUA will incorporate state reliance on state guidance into joint examinations or in alternating examinations where the NCUA may be the lead agency.
Two commenters stated that there should be more consistent application of the rules and guidance across regions, with examples provided about BSA/
AML and audit reports. One commenter recommended that the NCUA should create a task force to evaluate
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