The changes aim to reduce compliance burdens for smaller institutions and align various standards with inflation.
The Federal Deposit Insurance Corporation (FDIC) has proposed significant updates to 12 CFR Part 363, commonly known as FDICIA, which governs annual independent audits and reporting requirements for insured depository institutions.
The changes aim to reduce compliance burdens for smaller institutions and align various standards with inflation. Explore the newly proposed rules and what they would mean for banks.
Key proposed changes to the FDICIA rules
Threshold increases across the board
- The general applicability threshold for Part 363 would rise from $500 million to $1 billion in total assets.
- The threshold for internal control over financial reporting (ICOFR) assessments would increase from $1 billion to $5 billion.
- Audit committee composition thresholds would also be raised, with several moving from $1 billion or $3 billion to $5 billion.
- Future threshold adjustments could occur under a yet to be determined indexing methodology.
Director independence compensation threshold
The compensation threshold used to determine whether a director is “independent of management” would increase from $100,000 to $120,000, aligning with national securities exchange standards.
Scope and impact
These changes would remove nearly 800 institutions from the scope of Part 363, while still covering institutions with approximately 95% of industry assets.
The FDIC’s rationale behind the FDICIA proposal
The FDIC provided several explanations for the proposed revisions:
Inflation adjustment
Most thresholds through FDICIA have remained unchanged for over 30 years. The updates reflect inflation and industry consolidation.
Burden reduction
Smaller institutions, especially in rural areas, face challenges in meeting audit committee composition and ICOFR requirements. The proposal aims to ease these burdens without compromising safety and soundness.
Implications for banks
Smaller institutions
Those with assets below the new thresholds could benefit from reduced compliance costs and reporting obligations. These benefits would need to be evaluated against risk mitigation strategies employed at the bank.
Larger institutions
Institutions above the new thresholds would continue to be subject to the same audit and ICOFR requirements, reinforcing financial transparency and risk management.
Audit committees
The changes may ease recruitment challenges for audit committee members in smaller markets.
Open questions for stakeholders
The FDIC is seeking public comment on several aspects of the proposal, including:
- Whether the new thresholds strike the right balance between regulatory burden reduction and safety and soundness.
- Potential unintended consequences of diverging from other regulatory frameworks, such as FNMA, HUD, the Federal Reserve, and state bank regulatory requirements.
- The benefits of various proposed indexing methodologies to adjust reporting thresholds in the future.
In addition, the largest open question is how and when the FDIC might make any new proposed rule effective. As banks approach their 2025 calendar year ends, they will need to be prepared to continue under the existing regulatory framework of FDICIA.
How CLA can help with the proposed FDICIA changes
CLA’s financial services professionals can help you assess the implications of these proposed changes and develop strategies to adjust to the new rules when they go into effect.