On October 20, 2020, the FDIC issued an interim final rule (the "Interim Final Rule") to provide banks temporary relief from the Part 363 audit and reporting requirements. Due to participation in various government stimulus efforts, including the Paycheck Protection Program, the Paycheck Protection Program Liquidity Facility, the Money Market Mutual Fund Liquidity Fund, and receipt of deposits through federal stimulus payments, banks have experienced large inflows of cash. The Interim Final Rule is applicable to all FDIC insured financial institutions with at least $500 million in consolidated total assets.
Part 363 generally requires financial institutions with at least $500 million in total consolidated assets to obtain annual independent audits, meet related reporting requirements, and establish an audit committee comprised of a majority of outside directors. Part 363 requires banks with at least $1.0 billion in total consolidated assets to prepare assessments of the effectiveness of internal control over financial reporting and establish an audit committee comprised of all outside directors. Under Part 363, the audit committees for banks with at least $3.0 billion in total consolidated assets must include members with banking or related financial management expertise, have access to their own outside counsel, and not include any large customers of the bank.
Currently, banks determine if they are subject to Part 363 based on their consolidated total assets as of the beginning of their fiscal year. The Interim Final Rule gives eligible banks discretion to determine if they are subject to the requirements of Part 363 for the fiscal year ending in 2021 based on the lesser of (1) their consolidated total assets as of December 31, 2019 and (2) their consolidated total assets as of the beginning of their fiscal years ending in 2021. The FDIC reserves the right to require a bank to comply with any requirement of Part 363 if the asset growth was related to a merger or acquisition.
According to the FDIC, the Interim Final Rule is intended to "neutralize burdens that banks may incur or have incurred because of temporary increases in their consolidated total assets resulting from participation in recent COVID-19-related stimulus activities, as the effort to develop processes and systems to comply with the requirements of Part 363 can be substantial."
Many banks have experienced a rapid (and potentially short-term) influx of assets during the COVID-19 pandemic. By allowing banks to use their 2019 asset size for 2021 auditing and reporting requirements, the Interim Final Rule will provide regulatory relief for approximately 300 banks based on June 30, 2020 call report data. Both the American Bankers Association and Independent Community Bankers Association have released statements in support of the Interim Final Rule.
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