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OCC passes rule to stem ESG tide as front man leaves

Chris Hamblin, Editor, London, 17 January 2021

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The US Office of the Comptroller of the Currency has promulgated a rule to force banks to assess risks that pertain to customers individually instead of making broad decisions that affect whole categories or classes of customer when they proffer service. Critics say that this might disadvantage banks if they deny people financial services according to climate-related risks.

Acting Comptroller of the Currency Brian Brooks stepped down from his post a few days ago, leaving the new rule to go onto the Federal Register. Chief Operating Officer Blake Paulson became Acting Comptroller in his place, pending the appointment of his successor by the upcoming Biden administration.

Brian Brooks said of the rule: "When a large bank decides to cut off access to charities or even embassies serving dangerous parts of the world or companies conducting legal businesses in the United States that support local jobs and the national economy, they need to show their work and the legitimate business reasons for doing so. As comptrollers and staff in previous administrations have made clear in speeches, guidance, and testimony, banks should not terminate services to entire categories of customers without conducting individual risk assessments. It is inconsistent with basic principles of prudent risk management to make decisions based solely on conclusory or categorical assertions of risk without actual analysis. Moreover, elected officials should determine what is legal and illegal in our country."

The rule (which the Biden administration might yet rescind) is designed to implement language included in Title III Dodd–Frank Wall Street Reform and Consumer Protection Act 2010, which charges the OCC with "assuring the safety and soundness of, and compliance with laws and regulations, fair access to financial services, and fair treatment of customers by, the institutions and other persons subject to its jurisdiction." The statute expanded the OCC's mission to include fair access separately from fair treatment in the wake of the continuing financial crisis that began in 2008, during the early years of which the Government bailed out the banks on very easy terms.

The rule applies to the largest banks - including private banks - with more than $100 billion in assets that may exert significant pricing power or influence over sectors of the nation's economy. Under the rule, banks should still determine their product lines and make their own decisions about what and whom to serve. The rule is scheduled to require the relevant banks to make those products and services they choose to offer available to all customers in the communities that they serve, based on considerations of quantitative, impartial, risk-based standards that they themselves have established. Under the rule, a covered bank's decision to deny services based on such objective assessment would not violate the bank's obligation to provide fair access. However, a covered bank's decision not to offer a specific kind of financial product or service or not to compete in a geographic market is unaffected.

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