Federal Regulators Unveil Rules on Their Sometime Proxies, Bank Consultants

Private bank consultants, long known as Wall Street’s shadow regulators, are now facing some regulation of their own.

The Office of the Comptroller of the Currency, which oversees some of the nation’s biggest banks, announced on Tuesday that it had adopted some of the first federal standards governing the use of consultants. The standards, which outline how the agency will review consultants and monitor their work for banks, could curb the influence of a multibillion-dollar industry that faces questions about its perceived coziness with Wall Street.

Consultants like Deloitte, the Promontory Financial Group and PricewaterhouseCoopers are required to offer a neutral assessment of a bank’s problems, but the consultants are handpicked and paid by those same banks. Fueling concerns about consultants, the industry drew fire for its handling of recent bank regulatory problems, including a review of millions of home foreclosures. The consultants racked up about $2 billion in fees while struggling to finish the assignment, prompting government authorities to reconsider their use and oversight.

The comptroller’s standards are the latest element of a broader campaign to rein in the consulting industry on Wall Street. They come on the heels of investigations opened by New York State’s financial regulator into whether the consultants overlooked questionable behavior at the request of the banks.

The scrutiny, while it might not erode the consulting industry’s profits, could cost consultants individual assignments and undermine their credibility in Washington and on Wall Street.

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

Most consultants declined to comment on the new standards. But a spokesman for Promontory, Christopher Winans, welcomed the guidelines, saying they brought “a useful measure of clarity.”

But challenges remain. The consultants are entwined in the regulatory apparatus. When issuing enforcement actions, the comptroller’s office routinely requires that banks hire a consultant to tackle problems like porous controls against money laundering or flawed foreclosure practices.

The consulting industry has also established close links to the regulators, routinely hiring from the government’s ranks. Promontory was founded by Eugene A. Ludwig, a former comptroller of the currency.

The consulting industry has defended the quality of its work and its independence. The firms say they report to a bank’s board, not to the executives who may wish to influence them.

Yet the New York financial regulator, Benjamin M. Lawsky, is investigating whether the consultants compromised that autonomy.

Mr. Lawsky took his first action against Deloitte, accusing it of diluting a report about money-laundering controls at the British bank Standard Chartered. Under the terms of a settlement in June, Mr. Lawsky fined Deloitte $10 million and barred it from advising banks in New York for a year.

Deloitte, which was not accused of intentionally aiding or abetting Standard Chartered, said at the time that it “has an important responsibility to continually elevate the standards that govern our work and that of our profession.”

Mr. Lawsky has since subpoenaed two other top consulting firms, Promontory and PricewaterhouseCoopers, according to people briefed on the matter.

PricewaterhouseCoopers declined to comment on the subpoena. Promontory also declined to address it, but a spokesman said that the firm “from time to time receives document requests in the form of subpoenas related to client activities.”

Federal authorities have trailed Mr. Lawsky, much to the dismay of Congress. After the botched foreclosure review, Senator Sherrod Brown, Democrat of Ohio, questioned why the comptroller’s office had yet to draft written standards for consulting firms.

“I hope that part starts this afternoon,” Mr. Brown said at a Senate hearing in April.

The comptroller of the currency’s office, which under Mr. Curry’s tenure of more than a year has adopted a harder line with the banks it regulates, petitioned Congress for greater legal authority to police the consultants. It also moved forward with the standards introduced on Tuesday, which impose new responsibilities on regulators and banks.

Under those criteria, banks must conduct “due diligence” on a consultant before hiring it. The comptroller’s office will then scrutinize the bank’s research to verify a consultant’s qualifications and guard against conflicts of interest.

The comptroller’s standards declared that “any direct conflicts or facts that call into question the independent consultant’s integrity will cause the O.C.C. to disqualify the consultant.” The standards would prevent any consultant from scrutinizing the same transactions twice.

But there is ambiguity about what constitutes a conflict and whether the agency has the resources to prevent every questionable relationship. The comptroller’s office conceded that “it may not be possible to ensure” that no previous relationship exists between a bank and its consultant.

As such, Mr. Curry noted that his agency was aware that it could not fully delegate authority to the consultants.

“The standards we are publishing today help us achieve those important objectives while ensuring that a consultant’s conclusion is never substituted for the O.C.C.’s supervisory oversight,” Mr. Curry said.