Related Organizations

Supervision of Related Organizations

An assessment of the overall safety and soundness of a bank includes a review of related organizations to determine whether the activities of those related entities mitigate or increase the risks borne by the bank. Although the activities of, and risks posed by, related organizations may vary significantly, OCC’s review of all types of related organizations will focus on three primary determinations:

• Whether the bank’s risk management system and other corporate governance processes ensure that the interests of the bank are being properly regarded.

• The impact of the related organizations on the bank’s reputation and franchise.

• The effect of the relationships on the bank’s liquidity, earnings, and capital.

Examiners will review and evaluate the following aspects of the bank’s governance of related organizations:

• Due diligence over the formation or acquisition of related organizations, particularly when a new related organization offers new services to the bank or its customers.

• Risk management functions, including audit and compliance, to ensure that risks posed by related organizations are appropriately identified, measured, monitored, and controlled.

• Controls to guard against conflicts of interest and the potential for dual loyalties, to ensure that dealings with related organizations are at arm’s length and in the best interests of the bank.

• Monitoring for compliance with sections 23A and 23B and Regulation W, as well as for compliance with the federal anti-tying prohibitions.

• Controls to prevent the payment of inappropriate or unsubstantiated fees to related organizations.

• Transparency and adequacy of disclosure and reporting, to ensure that related organizations are identified and accounting treatment is appropriate.

If the bank’s oversight system is appropriate in view of the nature and type of the activities conducted by the related organizations and the risks posed to the bank, a comprehensive analysis of each of the bank’s related organizations may not be necessary.

With respect to operating subsidiaries, the OCC’s supervisory process will continue to focus on reviewing and assessing the consolidated risk profile of a national bank. Operating subsidiaries are subject to the same supervision and regulation as the parent bank, except where otherwise provided by law or OCC regulation.

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