the examiners are coming!
TRANSCRIPT
The Examiners Are Coming!
The Examiners Are Coming!
April 22, 2015
Greg Jones: Director Regulatory Compliance Services
Sonny MacArthur: Partner
Another @#$% Exam?
They Were Just Here!
▲ A financial institution is granted a charter to operate
by a national (OCC/OTS) or state regulatory agency.
The FDIC and NCUA grant deposit insurance for all
federal and most state-chartered financial institutions.
This chartering process grants regulatory agencies
the authority to conduct examinations of regulated
institutions.
▲ Depending on size and condition, your institution may
be examined for safety and soundness on a schedule
ranging from every six to eighteen months.
Polling Question #1
Of the institutions on the call today, are you:
a) A National Bank
b) A State-Chartered Bank
c) A Credit Union
Types and Frequency of Exams
▲ Frequency is largely risk driven.
▲ A regulatory readiness culture can have your
institution prepared to undergo any exam type at any
time.
Safety and Soundness Consumer Compliance
Community Reinvestment Trust
Information Technology Holding Company
Targeted/Limited Scope Visitations
The Elephant in the Room
▲ The Consumer Financial Protection Bureau (CFPB)
▲ CFPB’s sole focus is on consumers
▲ CFPB actions driven by Dodd-Frank requirements
are contributing materially to the erosion of the
community financial institution model
▲ If you’re not already following the CFPB’s activities,
give this immediate attention
The Examination Cycle
▲ Pre-Examination Preparation
▲ The Examination Kickoff Meeting
▲ The Onsite Visit
▲ The Exit Meeting
▲ Responses to the Examination Report
Pre-exam Activities
▲ A PERK, or Pre-Examination Response Kit, is sent to
the institution, usually thirty or more days before the
onsite examination is scheduled to begin
▲ The PERK asks for routine financial and asset
quality reports, policy and procedure documents,
and access to Board and Board committee minutes
▲ How you approach the PERK can be a key factor in
getting the best results from the examination
Polling Question #2
When completing the PERK, do you:
a) Assign the task of fulfilling the PERK to one or several
persons within middle management with little to no
involvement from senior or executive management;
b) Assign the task of fulfilling the PERK to one or several
persons within the senior management ranks;
c) Assign the task of fulfilling the PERK to one or several
individuals within middle or senior management and final
review and approval by one or several members of executive
management; or,
d) Have no formal process or structure in place for fulfilling the
PERK.
The Examination Kickoff
▲ An opportunity to inject your thinking into the exam
process and hopefully steer its direction
▲ A SWOT (Strengths, Weaknesses, Opportunities,
Threats) presentation is an excellent way to outline
for the examiners your vision, capabilities and
thought processes
Polling Question #3
As a part of your examination preparation, do you
prepare a formal presentation, such as a SWOT
analysis, for discussion with the examination team
during the kickoff meeting?
a) Yes
b) No
The Onsite Visit
▲ Comfortable working conditions
▲ Reasonable access to institution records and
relevant management
▲ Well organized information
The Exit Meeting
▲ If you’ve managed the exam process well to this
point, there shouldn’t be any big surprises the
examiners raise at this meeting
▲ If there are issues you simply can’t resolve, take the
situation as a learning experience to improve your
institution
Responses to the Examination Report
▲ An opportunity to build on the collaborative efforts
made during the exam
▲ Clear, cooperative tone, perspective view
The Safety and Soundness Examination
▲ The most comprehensive regulatory examination
▲ Structured around the interagency CAMELS rating
system (Capital, Asset Quality, Management,
Earnings, Liquidity, Sensitivity to Interest Rates)
Other Types of Examinations
▲ Other examination types are smaller in scale than
the Safety and Soundness exam, and targeted at the
area in question.
▲ Examiners will have specialized training in these
areas, such as Consumer Compliance, CRA or Trust.
▲ While smaller in scale and less obtrusive, these
specialty examinations produce their own ratings.
Poor ratings can result in operating restrictions
being placed on the overall institution by regulators,
as well as targeted enforcement actions.
Polling Question #4
Are you familiar with or have you read the
Collaboration white paper issued by the OCC in
January 2015?
a) Yes
b) No
Deriving Benefit from an Examination
▲ Is this possible? Yes
– Examiners are essentially prepaid consultants
– They receive regular comprehensive training on all aspects
of financial institution operations
– They see things done in many different and successful
ways in a variety of situations – tap into their perspective
– Regulators maintain profiles on your bank – help them write
a positive one!
– With good regulatory relationships, you can call regulators
between exams and bounce new ideas and strategies off of
them, and they will likely be more receptive if relationships
are good
Deriving Benefit from an Examination (continued)
▲ Don’t be intimidated
▲ Engage examiners regularly during the onsite exam.
▲ Meet every request cordially and quickly.
– Designate a point person to coordinate all interactions
– Under promise – over deliver
– Exceed expectations
▲ Dazzle them!
Regulatory Readiness Defined
▲ A continuous process of monitoring preparedness
and establishing confidence entering into any exam.
▲ Identifying things you do well, then perfect them.
▲ Building a culture that embraces external reviews.
▲ Using the regulatory oversight process to enhance
your operating performance.
▲ Maintaining ongoing dialogue with the regulators.
Internal Audit’s Contribution
▲ Enterprise Risk Management (ERM) continues to garner
greater regulatory attention as competitive and
cybersecurity threats increase
▲ Financial, operational and compliance risk assessments
to help understand these threats can provide depth to
regulatory readiness efforts across the ERM spectrum
▲ Properly tailored IA reviews and IT/compliance testing
will increase regulatory confidence in your institution’s
risk management abilities
Changing Perceptions
▲ Stop viewing the exam process as adversarial.
▲ Examiners have personal pressures just like you.
– They are in many cases away from their homes for extended periods of
time.
– They are under time constraints to edit and submit your exam report,
while planning for their next assignment.
– They don’t have the emotional attachment to your institution that you do –
convince them of your passion to do things the right way.
Playing Offense
▲ Make the examiners job as easy as possible
▲ Provide transparent reporting
▲ SWOT presentations (Strengths, Weaknesses,
Opportunities, Threats)
▲ Use the examiners’ manual to test your operations
▲ Develop a sound PERK review process that ensures
complete and accurate information is provided to the
examiners in a timely and coordinated manner
In Summary
▲ Approach examinations with a view toward making
your institution better, and the process will become
more agreeable and rewarding
▲ Establishing a culture of regulatory readiness will
increase the likelihood of this happens
▲ You may even be able to gain some competitive
advantage from the process
Discussion
▲ Questions and Answers
Sonny MacArthur
Partner
404.420.5631
Greg Jones
Director – Regulatory
Compliance Services
404.420.5997
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