■ ■ ■ Consumer Financial Protection Bureau: Supervisory Highlights:
Winter 2013 (January 30, 2014): http://files.consumerfinance.
gov/f/201401_cfpb_reports_winter-2013-sup-highlights.pdf
The CFPB modified its policy for examination report communications to:
• Exclude recommendations from the examination report.
Recommendations for improving currently satisfactory
processes will be provided orally when examiners are on site.
• Create a single report section that includes all items the organization must address, referred to as “Matters Requiring Attention,”
regardless of whether the CFPB is requiring specific attention
by the board of directors. “Required Corrective Actions” will
no longer be a separate section. Instead, the organization will
be expected to furnish periodic progress reports to the CFPB
about all “Matters Requiring Attention.” Reporting frequency
will be tailored to the specific matters in a report.
The agencies’ policy modifications supplement or replace other
policy guidance regarding examination communications listed
in Table #1 on page 11.
Industry Solution Strategies
■ ■ ■ Ongoing due diligence regarding expectations: Keep apprised of
what is written in supervisory issuances, maintain open relationships with the examiner in charge (EIC) and others at the local
office, and leverage industry network and peer experiences.
■ ■ ■ Proactive approach to recommendations: Evaluate each recommendation to demonstrate responsiveness to examiners
evaluating compliance risk management. Doing so also prepares
the bank when the recommendation influences the scope of
the next examination. The following is a practical four-step
protocol for reviewing recommendations.
• Determine factors contributing to the recommendations.
Assess the cost and benefit and feasibility of implementation
in the near term, in the long term, and not at all.
• Document rationale for conclusions and review with senior
management, including risk control and governance bodies,
such as compliance and audit committees.
• Include management’s final decision regarding recommendations in the response to examination report. Alternatively,
retain documentation of the analysis for the next examination.
• Monitor recommendations as you would examination report findings.
Communication Gap #2: Confusion exists about findings because
of a lack of mutual understanding of bank operations and offerings, applicability of regulations, and the regulator’s priorities.
Contributing factors include:
■ ■ ■ Changes to operations or offerings, especially given today’s
focus on product and service features;
■ ■ ■ Examination personnel, including those from other regions,
that are unfamiliar with the bank’s operations; and
■ ■ ■ Different priorities or interpretations between examinations that
elevate a previously acceptable activity to a substantive issue.
Agency Response: Regulators emphasized open communication
throughout the examination, as well as during interim periods,
to promote a clear understanding of operations and regulatory
implications and priorities. It was also suggested that there might
be more ability to rely on local examination staffing as the industry
becomes more stable.
Industry Solution Strategies:
■ ■ ■ Maintaining open and ongoing communications with EIC and
regional office. Provides framework to gauge shifts in priorities
prior to examination. Open communication also promotes the
trust needed to reasonably resolve differences.
■ ■ ■ Leveraging examination meeting protocols:
• Modifying the first-day examination routine to orient examiners who are new to the bank or need an introduction
to products or services that are complex or have changed.
Note: Table #2 outlines key first-day meeting considerations.
• Routinely include both business line and compliance staff in
discussions with examiners regarding product specific issues.
Communication Gap #3: Breakdowns in information exchange
during the onsite portion of the examination preclude agreement
on violations, severity, or corrective action expected.
Agency Response: Regulators encourage open discussion. In
fact, push back was viewed as useful to avoid inaccurate findings
or technical issues that were unnecessarily elevated. Regulators
emphasized that discussions were optimal when they occurred
during the examination. The regulators also noted banks may
pursue issues directly with agency management or formally
through the examination appeals process.
Industry Solution Strategies:
■ ■ ■ More attention to early warnings from examiners: As one banker
put it, “As soon as you hear, ‘We have some questions about…,’
start your due diligence engines immediately to ensure the examiner has all the facts and information.” Institutions are also
implementing corrective action while examiners are on site.
■ ■ ■ Increased diligence in reviewing issues and identifying the root
cause of preliminary findings while examiners are still on site.
■ ■ ■ Routine consultations with legal or other subject matter experts
during onsite examination, especially for fair lending, UDAAP,
flood, Bank Secrecy Act, and other big-ticket items.
■ ■ ■ Escalating issue resolution to agency management and, as
warranted, more formal review through a formal appeals.
Best Practices in the Life Cycle of an Examination
Responding to issues is part of the examination lifecycle, which
The industry’s perceived inability
to obtain a “strong” compliance rating
was most disappointing to bankers.
