Framework for Assessing Consumer Compliance Risk at Bank Holding Companies
January 14, 2004
Circular No. 11570

To All Depository Institutions and Others Concerned in the Second Federal Reserve District:

In a supervisory letter (SR 03-22/CA 03-15), revised January 8, 2004, the Federal Reserve Board announced enhancements to its bank holding company supervision program. These changes will ensure that examiners are focusing appropriately on consumer compliance risk-related matters across the broad range of a bank holding company's activities. The framework incorporates an assessment of consumer compliance risk in the evaluation of a banking organization's overall risk profile.

The Board's Division of Banking Supervision and Regulation and Division of Consumer and Community Affairs have developed an enhanced framework for the supervision of consumer compliance risk at large complex banking organizations (LCBOs) and at large banking organizations (LBOs) that are subject to the System's continuous supervision program.

Under the framework, consumer compliance examiners will assess consumer compliance risk across the broad range of a banking organization's activities. The examiners will determine the level and trend of such risk and evaluate how it impacts the organization's reputational, legal, and operational risk profiles. Activities appropriate to the level of the organization's consumer compliance risk will be included in the supervisory plan developed by the supervisory team to address the risks identified in an organization's business activities.

The framework is being implemented in stages, with the initial emphasis on LCBOs and certain LBOs. For other bank holding companies surveillance and other information will be used by the Reserve Banks to assess consumer compliance risk. Shell holding companies will not be assessed for such risk. Federal Reserve supervisory staff will consider the benefits of expanding the framework to other bank holding companies and the cost of doing so after the framework is implemented in the LCBOs and applicable LBOs.

SR (03-22)/CA (03-26) letter OFFSITE
Framework for assessing risk OFFSITE PDF

John Ricketti
Vice President
Compliance Examinations