Federal Reserve Proposes Modifications to Its Supervisory Appeals Process and Ombudsman Policy

On Tuesday, February 27, 2018, the Federal Reserve proposed to modify its guidelines and processes that institutions may rely upon to appeal an adverse material supervisory determination. The proposal also seeks to modify the Federal Reserve’s policy for its Ombudsman. Comments regarding the proposals will be accepted through April 30, 2018.

Appeals Process

The Federal Reserve’s proposal is “designed to improve and expedite the appeals process.” Specifically, the proposal would remove one of the existing three levels of appeal. The proposed two-tiered framework would require that an initial review panel first consider an entity’s appeal request, and, if the entity continues to have concerns, a final review could be requested.

The initial review panel would be comprised of three Reserve Bank employees and an attorney that would advise the panel on its responsibilities. Those four individuals (1) must not have been substantively involved in any matter at issue in the appeal, (2) cannot report directly or indirectly to anyone who made the initial supervisory determination, (3) must not be employed by the Reserve Bank that made the initial supervisory determination, and (4) must have experience relevant to the issue at hand in the review. The initial review panel would be required to approach the review as if no determination had previously been made, and would be permitted to consider any relevant materials submitted by the institution and the Federal Reserve staff.

The final review panel would be comprised primarily of Federal Reserve Board staff. It would include at least two Federal Reserve Board employees, at least one of whom must be an associate director or hold a higher position. The Federal Reserve Board’s general counsel would also appoint an attorney to advise the panel on its responsibilities. The four individuals (1) must not be employed by the Reserve Bank that made the initial supervisory determination, (2) cannot report directly or indirectly to anyone who made the initial supervisory determination, (3) must not have been members of the initial review panel, and (4) must not have been personally consulted on the issue being appealed or provided guidance on how the issue should be resolved during a prior review. The final review panel would consider whether the initial review panel’s determination was “reasonable and supported by a preponderance of the evidence in the record,” and would not be permitted to review new information that was not in the record. The final review panel’s decision would be made public “[i]n order to maximize transparency.”

The Federal Reserve notes that it welcomes comments on all aspects of the proposal related to the appeals process, but specifically notes that it is seeking comments on:

  • The proposed standards of review for the initial and final review panels;

  • The nature and composition of the initial and final review panels;

  • The record that each of the review panels may consider during an appeal; and

  • The proposed appeal timelines.

Ombudsman Policy

The Federal Reserve’s release notes that the Ombudsman currently “is the initial recipient of all complaints pertaining to the supervisory process, which may include an appeal request.” The proposal would formalize that and would also allow the Ombudsman to attend an appeal hearing or deliberation if requested by the appealing institution or the Federal Reserve staff. The Ombudsman’s role at a hearing or deliberation would be as an observer.

The Federal Reserve is also proposing to make the Ombudsman the decision-maker with respect to claims of retaliation resulting from a supervisory appeal. Finally, the proposal would emphasize within the Ombudsman policy that the Ombudsman is available to facilitate the informal resolution of concerns related to supervisory determinations so as to avoid having to utilize the formal appeals process.

The Federal Reserve is seeking comment on all aspects of the proposed Ombudsman policy modifications.