OCC reminds banks of new-director notifications

Regulators have reminded compliance teams that banks in financial trouble that plan to refresh their board or executive team need to take certain steps – and that making a mistake can be expensive.

The Office of the Comptroller of the Currency (OCC) on February 16 issued new guidance that updates information on procedures and requirements following the integration of the Office of Thrift Supervision into the OCC in 2011, and incorporating revised regulations that became effective on July 1, 2015.

Under federal regulation, certain depository institutions must give notice ahead of proposed changes in their line-ups of directors and senior executive officers – and, in turn, their regulators must wrap up their review of that notice within a certain time frame.

A bank that does not provide the required notice before a director or senior executive officer assumes his/her position, or does not obtain a waiver, may face civil money penalties of up to $1 million for each day it fails to comply.

Specifically, a bank is required to file an inter-agency notice of change in director or senior executive officer at least 90 days before the proposed director or senior executive officer’s directorship, employment or change in responsibilities if one the following applies:

• The bank is in a so-called ‘troubled condition’
• The bank is not in compliance with minimum capital requirements
• The OCC determines, in connection with a review, that such notice is appropriate.

 A bank is deemed to be in troubled condition when it:

• Has a composite rating of four or five under the Uniform Financial Institutions Rating System
• Is subject to a cease-and-desist order, consent order or formal written agreement, unless otherwise informed by the OCC
• Is informed in writing by the OCC that it has been designated in troubled condition.

According to the latest guidance, a bank can apply for a prior notice waiver and the OCC can opt to waive the notice requirement if a delay could adversely affect the safety and soundness of the bank, a delay would not be in the public interest, or other extraordinary circumstances exist.

If a technically complete notice is not filed within the time frame specified in the waiver, the proposed individual must resign his or her position immediately. If a new director not proposed by management is elected at a shareholders’ meeting, there is deemed to be an automatic waiver of the prior notice requirement, but the bank must file a completed notice no more than seven days later, officials write.

FILING THE NOTICE
The bank – and each proposed director or senior executive officer – is responsible for understanding the requirements and for the accuracy of the statements in the notice, according to the latest guidance.

Unless the bank qualifies for a streamlined notice, the notice must include information such as:

• An inter-agency notice of change in director or senior executive officer:

− An authorized bank representative must sign the certification

− If the notice is for an individual to assume the position of president of a national bank, the notice must also indicate that the individual will assume the position of director, unless the individual is already a director of the national bank

− If the notice is for an individual to assume the position of president of a federal savings association and the association’s bylaws require the president to serve as director, the notice must also indicate that the individual will assume the position of director, unless the individual is already a director of the association

• An inter-agency biographical and financial report
• Employment contracts or compensation arrangements
• Fingerprint cards.

An extensive investigation may be unnecessary if the OCC already has information about the proposed director or senior executive officer – if, for example, the individual is already employed in, or is an executive officer of, the bank or an affiliate.

Banks subject to OCC proxy rules must also disclose the agency’s disapproval authority in proxy materials provided for the company’s annual meeting, officials write.