The Washington Post

Federal regulator lays down the law for consulting firms

The Office of the Comptroller of the Currency, which regulates the nation’s biggest banks, Tuesday issued the first detailed standards for consulting firms hired by banks to comply with enforcement orders.

Consultants are supposed to work at the behest of regulators to provide objective assessments of an institution’s problems. But lawmakers have raised doubts about the independence of consultants handpicked by financial firms accused of wrongdoing.

“While consultants can provide knowledge, expertise, and additional resources, we must take care to ensure they maintain independence and are subject to appropriate oversight,” Comptroller of the Currency Thomas J. Curry said in a statement.

Under the new guidance, the OCC requires banks to disclose any potential conflicts of interest, including former employees working for the consultant and any financial or business ties. The agency wants banks to document disciplinary actions taken against the consultant and the resources the firm has to complete an assignment, among other things.

The bank regulator is to take all of these factors into consideration before approving the use of a consultant.

The OCC routinely requires banks to hire independent consultants to identify and correct problems outlined in an enforcement action. Nearly a third of the 600 actions taken by the OCC from 2008 to 2012 mandated that banks retain consultants, according to the agency.

Tuesday’s guidance only applies to consultants used in enforcement actions involving harm to consumers, fraud or significant violations of the law.

“Now that the ink is dry, the OCC must vigorously enforce these standards to ensure that consultants serve the public, not the banks that hire them,” said Sen. Sherrod Brown (D-Ohio), who earlier this year called for increased oversight of consultants.

Brown was among several lawmakers who criticized the OCC for providing poor oversight of consultants hired to review millions of troubled home loans as part of a foreclosure agreement with more than a dozen mortgage servicers.

The servicers, including Wells Fargo and Bank of America, hired consultants to review their foreclosure files and pay homeowners based on what they found. The eight consulting firms walked away with $1.9 billion before the OCC shut down the process and negotiated a $13 billion settlement with most of the banks.

The revelation prompted congressional hearings, where it was revealed that Promontory Financial was paid $927.5 million, Deloitte received $465 million and PricewaterhouseCoopers took in $425 million for its work.

The consulting firms defended the long hours they put in combing through thousands of files. Still, lawmakers were troubled that they raked in billions of dollars, while most of the 4.2 million homeowners covered under the agreement received just a few hundred dollars.

In light of the faulty review, the OCC asked Congress to expand its authority to sanction independent consulting firms that engage in wrongdoing. No action has been taken on that front, according to the agency.

Consultants have been engulfed in a firestorm over their alliances on Wall Street and influence in Washington. The surge in enforcement actions and new regulations since the financial crisis has at once propelled and disrupted the consulting business.

In September, New York’s top banking regulator subpoenaed Promontory and PricewaterhouseCoopers in connection with their work on money-laundering cases. A person familiar with the investigations said the department is looking into whether the consulting firms acquiesced to client demands and shirked their duties to regulators.

The state regulator issued its own guidelines for consultants in June, after hitting Deloitte Financial Advisory with a $10 million fine and a one-year ban.



Success! Check your inbox for details. You might also like:

Please enter a valid email address

See all newsletters

Show Comments
Most Read



Success! Check your inbox for details.

See all newsletters

Your Three. Videos curated for you.
Play Videos
Be a man and cry
Program turns prisoners into poets
Unconventional warfare with a side of ale
Play Videos
The signature dish of Charleston, S.C.
For good coffee, sniff, slurp and spit
The most interesting woman you've never heard of
Play Videos
How to prevent 'e-barrassment'
The art of tortilla-making
A man committed to journalism, caught in the crossfire
Play Videos
Tips for (relatively) stress-free dining out with kids
How to get organized for back to school
How the new credit card chip makes purchases more secure

To keep reading, please enter your email address.

You’ll also receive from The Washington Post:
  • A free 6-week digital subscription
  • Our daily newsletter in your inbox

Please enter a valid email address

I have read and agree to the Terms of Service and Privacy Policy.

Please indicate agreement.

Thank you.

Check your inbox. We’ve sent an email explaining how to set up an account and activate your free digital subscription.