Comptroller’s Handbook Examination Process Federal Branches and Agencies Supervision Version 1.0, September 2014 Version 1.1, December 3, 2015 Version 1.5, September 30, 2019 Version 1.2, May 23, 2017 Version 1.3, October 31, 2017 Version 1.4, June 28, 2018 Version 1.5 Contents Contents Introduction ..............................................................................................................................1 Background ................................................................................................................... 1 Relevant Laws, Regulations, Policies, and Procedures ................................................ 4 Coordination and Communication With Foreign Bank Supervisors ............................ 5 Risk-Based Supervision Approach .........................................................................................7 ROCA Rating System ................................................................................................... 8 Core Assessment ......................................................................................................... 11 Risk Assessment System............................................................................................. 12 Risk Management ....................................................................................................... 14 Measuring and Assessing Risk ............................................................................. 15 Supervisory Process .................................................................................................... 16 OCC’s Supervisory Information Systems ............................................................. 18 Supervisory and Enforcement Actions ................................................................. 18 Signatories on Supervisory and Enforcement Actions ................................... 20 Examination Areas ...................................................................................................... 20 Management and Supervision ............................................................................... 20 Evaluating Corporate Governance .................................................................. 21 Internal Controls and Audit .................................................................................... 22 Internal Control s............................................................................................... 22 Audit ............................................................................................................... 23 Information Technology ....................................................................................... 24 Compliance ........................................................................................................... 25 BSA/AML and OFAC .................................................................................... 25 Consumer Compliance .................................................................................... 26 Capital Equivalency Deposit Accounts ................................................................ 27 Regulatory Reports ............................................................................................... 30 Record Keeping and Reporting ............................................................................. 31 Asset Quality ......................................................................................................... 32 Measuring and Assessing Credit Risk ............................................................ 34 Trade Finance Activity ................................................................................... 34 Concentrations of Credit ................................................................................. 35 Allowance for Loan and Lease Losses ........................................................... 35 Operations Booked at Other FBO Offices ............................................................ 36 Management of Non-U.S. Branches ............................................................... 37 Sales and Trading ............................................................................................ 38 Other FBO Activities Not Recorded on the Books of the U.S. Branch .......... 39 Asset/Liability Management ................................................................................. 39 Interest Rate Risk ............................................................................................ 40 Liquidity .......................................................................................................... 41 Due-To and Due-From Head Office Account ...................................................... 43 Trading Activities ................................................................................................. 44 Earnings ................................................................................................................ 45 Correspondent Banking Activities ........................................................................ 46 Comptroller’s Handbook i Federal Branches and Agencies Supervision Version 1.5 Contents Private Banking ..................................................................................................... 48 Core Assessment.....................................................................................................................50 Examination Planning............................................................................................ 50 Minimum Objectives and Procedures .................................................................... 54 Risk Management ........................................................................................... 54 Operational Controls ....................................................................................... 56 Compliance ..................................................................................................... 58 Asset Quality ................................................................................................... 61 Operations Booked at Other FBO Offices ...................................................... 64 Interest Rate Risk Management ...................................................................... 66 Liquidity .......................................................................................................... 67 Due-To and Due-From Head Office Account ................................................ 69 Trading Activities ........................................................................................... 70 Earnings .......................................................................................................... 71 Correspondent Banking Activities .................................................................. 71 Private Banking ............................................................................................... 72 Examination Conclusions and Closing .................................................................. 74 Appendixes..............................................................................................................................78 Appendix A: Periodic Monitoring ......................................................................... 78 Appendix B: Capital Equivalency Deposit Adequacy Worksheet ........................ 80 Appendix C: Sample Request Letter ..................................................................... 81 Appendix D: Glossary ........................................................................................... 85 Appendix E: Abbreviations ................................................................................... 89 References ...............................................................................................................................90 Table of Updates Since Publication ......................................................................................93 Comptroller’s Handbook ii Federal Branches and Agencies Supervision Version 1.5 Introduction > Background Introduction The Office of the Comptroller of the Currency’s (OCC) Comptroller’s Handbook booklet, “Federal Branches and Agencies Supervision,” is prepared for use by OCC examiners in connection with their examination and supervision of federal branches and agencies of foreign banking organizations (FBO). The booklet provides information on assessing the safety and soundness, effectiveness of risk management systems, and compliance with laws and regulations of federal branches and agencies. Each federal branch and agency is different and may present specific issues. Accordingly, examiners should apply the information in this booklet consistent with each federal branch’s or agency’s individual circumstances. (Updated in versions 1.1 and 1.5) Background FBOs have long conducted banking operations in the United States through branches and agencies, as well as through subsidiaries.1 FBO branches and agencies typically operate in major U.S. cities and primarily conduct wholesale business, such as trade and corporate financing and serve FBO customers’ U.S. banking needs. Such offices obtain their funding mainly from interbank markets and related parties. A small number of grandfathered branches of FBOs in the United States accept retail deposits and are insured by the Federal Deposit Insurance Corporation (FDIC). Branches and agencies are exposed to the same risks as domestic commercial banks. Nonetheless, they are not stand-alone entities in