A pedestrian passes the seal of the Office of the Comptroller of the Currency (OCC) on Wednesday, March 20, 2019, displayed outside the organization’s headquarters in Washington, DC, USA.
Andrew Harrer | Bloomberg | Getty Images
The Office of the Comptroller of the Currency has announced that it has paused the publication of its Fair Access to Financial Services rule, a move it said will allow the next confirmed Comptroller of the Currency to pass the final rule and the public comments received by the OCC.
The rule would subject the largest banks to scrutiny when they refuse services to a customer based on risk factors that cannot be quantified, such as certain environmental, social and governance risks, as well as reputational risks.
Critics, from banking trading groups to ESG investors and legal scientists, said during the rule’s finalization earlier this month that it was rushed, poorly motivated, poorly written, and could be subject to legal and congressional challenges.
About 35,000 public comments in response to the rule were received by the January 4 deadline. The rule was proposed in November and the response deadline timeline was much shorter than the standard of 60 to 90 days. The regulator, who is required to review all public comments before enacting the rules, issued them eight business days after that deadline.
“The OCC’s long-standing supervisory guidance that banks should avoid termination of broad categories of clients without assessing individual client risk remains in effect,” a statement said Thursday. “The decision to suspend publication of the rule was an independent decision of the OCC.”
Some conservative think tanks and segments of industries that feel threatened by issues for which banks are increasingly refusing services, including loans – such as in energy, arms production and agriculture – supported the rule. Critics called it the “rule of gunmakers and rudders,” although the voices supporting their support were more widespread, including, for example, agricultural interests who feared animal rights activists might target banks that lend to them. Cryptocurrency projects, marijuana companies, sex workers and other niches also felt threatened and found support from groups such as the Electronic Frontier Foundation, which referred to the rule’s goal as ending “financial censorship.”
An OCC spokesperson previously told CNBC that many critics confuse the rule with a ban on banks to stop providing services and lending to risky companies. “That is wrong. The proposal requires major banks to demonstrate their work and conduct objective risk assessments of individual clients with regard to the provision of services, in accordance with previous guidelines from the Office of the Comptroller of the Currency.”
The rule applies to the largest banks with more than $ 100 billion in assets that “can exert significant pricing power or influence sectors of the national economy.”
The rule requires covered banks to make products and services available to all customers in the communities they serve, based on quantitative, unbiased, risk-based standards set by the bank.
Opposition from banks’ trading groups has been consistent since the rule was first proposed and after it was finalized.
“We are disappointed that the Acting Auditor chose to speed up final approval of this hastily designed and poorly constructed rule on his last day in office. The rule lacks both logic and legal basis, it ignores basic facts about how banking works, and it will undermine the security and soundness of the banks it applies to, “Bank Policy Institute president and CEO Greg Baer, representing the largest banks, said in a statement earlier this month. “The substantial problems are only offset by the glaring procedural flaws of the regulatory process, and for these reasons it is unlikely to withstand scrutiny.”
The American Bankers Association, which represents the broader banking industry, was concerned about the risk that a broader interpretation would be applied to all banks, calling the rule “ arbitrary and erratic ” in a comment letter to the OCC submitted last month, saying that this is not “clear legal authority, its inconsistency and potential conflict with long-standing and generally accepted risk management and supervision practices.”
ESG investors were just as tough.
“Under this rule, banks should not be busy assessing risk. That’s what banks do every day,” said Steve Rothstein, head of the Ceres Accelerator for Sustainable Capital Markets, a sustainability investment advocacy group. “Those who are doing well are making healthy loans and we are clearly seeing a trend towards greater awareness and engagement with ESG,” he told CNBC earlier this month. “You can’t just say it’s not an industry you want to be in. It’s an outrageous last ditch effort. The broader issue of how we measure risk, quantify climate risk, is an important one, but this particular rule is a distraction. “