Federal Reserve Proposes Guidance to Clarify Supervisory Expectations Related to Risk Management for Large Financial Institutions: Proposed Guidance Presents Core Principles for Effective Senior Management, Management of Business Lines, and Independent Risk Management and Controls

Sullivan & Cromwell LLP - January 8, 2018
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On January 4, the Board of Governors of the Federal Reserve System (the FRB) issued a proposal for public comment that would set forth core principles of effective senior management, the management of business lines, and independent risk management and controls for large financial institutions (LFIs). The proposed guidance would apply to domestic bank holding companies and savings and loan holding companies with total consolidated assets of $50 billion or more; the combined U.S. operations of foreign banking organizations (FBOs) with combined U.S. assets of $50 billion or more; any state member bank subsidiaries of the foregoing; and systemically important nonbank financial companies designated by the Financial Stability Oversight Council for supervision by the FRB. The proposal is intended to consolidate and clarify the FRB’s existing expectations regarding risk management and delineate the roles and responsibilities for individuals and functions related to risk management. For those LFIs that would be subject to the previously proposed LFI rating system (bank holding companies, certain savings and loan holding companies and U.S. intermediate holding companies of FBOs), the proposed guidance would also inform the FRB’s evaluation of each LFI’s governance and controls for purposes of that rating system.

Comments on the proposal are due by March 15, 2018.