Related Organizations

Examination Procedures

General Procedures

Examiners should determine the effect of related organizations on the bank’s safety and soundness by assessing the risks posed to the bank by the current and planned activities of the related organizations. The following procedures supplement the core assessment standards in the "Community Bank Supervision" and "Large Bank Supervision" booklets of the Comptroller’s Handbook. Using the core assessment standards, examiners can assess risks for most legal entities and products. After considering the bank’s risk profile and outstanding supervisory issues, examiners should perform appropriate additional procedures from the procedures below to determine the level of risk posed by its related organizations and the adequacy of the bank’s risk management systems.

National banks and their operating subsidiaries are normally examined on a consolidated line of business basis without regard to corporate structure. Operating subsidiaries are subject to the same supervision and regulation as the parent bank, unless otherwise provided by law or regulation. In assessing the bank’s risk profile, examiners will consider the risks posed by operating subsidiaries when developing an appropriate consolidated supervisory strategy for the bank and when performing supervisory activities.

When the activities, products, or lines of business in a bank, bank subsidiary, or other related organization warrant additional attention, examiners should perform appropriate expanded examination procedures from the booklet of the Comptroller’s Handbook that applies to the particular activity. For example, the "Mortgage Banking" booklet should be used for an operating subsidiary conducting mortgage activities.

Regardless of the nature of business being conducted by a related organization, the bank should have policies, procedures, and internal controls that are specific to the relationship, both financial and operational, between the bank and the bank’s related organizations.

In determining whether policies, procedures, and controls are adequate, examiners should consider, among other things, the results of internal audits, other internal compliance reviews, and external audits; the effectiveness of internal controls and management information systems; and work performed by other regulatory agencies. The following procedures will facilitate the assessment and should be used as appropriate in light of the risk posed to the bank by its related organizations.

Objective: Determine the scope of the examination of related organizations.

1.

  1. Obtain and review the following documents to identify any previous problems that require follow-up:

    • "Supervisory Strategy" and "Supervisory Concerns" in the OCC database.

    • EIC’s scope memorandum.

    • Previous report of examination.

    • Internal and external audit reports and reports of other internal compliance review units.

    • Examination reports prepared by other regulators, if available.

  2. Review the following information to determine if new related organizations exist:

    • Board minutes.

    • Bank-prepared listing of related organizations.

    • Bank financial statement and annual report.

    • Bank holding company reports.

    • Shareholder lists, officer and director statements of business interests/borrowing forms, and minutes to meetings of the board of directors.

    • FRB holding company inspection reports and state reports of bank holding company activities.

    • SEC reports, if applicable.

    • Examination reports of other regulatory agencies, including functional regulators, as available.

    • OCC’s corporate activity information system.

    • OCC’s supervisory information system.

  3. Discuss the bank’s related organizations with bank management, legal staff, internal/external auditors, examiner liaison, and other staff members, as appropriate, to determine:

    • How management supervises and controls the risks associated with the bank’s related organizations.

    • The line of business in which each related organization engages.

    • The relationship between the bank and each related organization.

    • How management responded to previously identified problems or concerns.

  4. Obtain:

    • The bank’s percentage of ownership and dollar amount invested in each related organization.

    • A list of transactions between the bank and each related organization, including loans to each entity, investments in it, and payments to or received from it. (High volume or recurring transactions may be grouped. For example, a monthly payment to a parent company for the performance of information technology services need be listed only once.)

    • A list of the services performed for or on behalf of the bank by each related organization, the services performed for or on behalf of each related organization by the bank, and the fees paid by or received from the bank for those services.

    • A list of assets, including market value, pledged as security for extensions of credit to each affiliate.

    • The types and amounts of assets involved in purchases, sales, or swaps between the bank and each related organization.

    • A list of the bank’s contingent liabilities as a result of acts of any related organization, or as a result of litigation, claims, or assessments pending against a bank subsidiary or other related organization.

  5. For operating subsidiaries and financial subsidiaries not previously reviewed, determine that the activity is being conducted as described in the bank’s filing and as the OCC approved (as applicable).

  6. If approval of an operating subsidiary was subject to conditions, determine whether bank management and the board of directors have abided by the conditions.

  7. Provide information on each related organization to the examiner responsible for the examination of the line of business each related organization is engaged in.

  8. Based on what was learned from these procedures, discussions with examiners responsible for the line of business each related organization is engaged in, and discussions with the bank EIC, determine the scope of this examination and its objectives.

  9. Select from among the following examination procedures, as necessary, to determine the level of risk and the effectiveness of the risk management processes for the bank’s related organizations.

  10. If the scope of the review needs further expansion based on perceived risk, select from among the examination procedures in the booklet of theComptroller’s Handbook for the related organization’s line of business.

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