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- WOULD YOU LIKE FOR ME TO PROVIDE YOU
WITH AN OVERVIEW OF OUR PROCESS
FOR CONDUCTING COMPLIANCE AND CRA EXAMINATIONS?
- YES, THAT'D BE GREAT.
- WELL, COMPLIANCE EXAMS
EVALUATE YOUR INSTITUTION'S ADHERENCE
TO CONSUMER PROTECTION AND FAIR LENDING LAWS.
SO A COMPLIANCE EXAM STARTS OUT VERY MUCH THE SAME WAY
AS A RISK MANAGEMENT EXAM-- OFF-SITE.
COMPLIANCE EXAMS BLEND
RISK-FOCUSED AND PROCESS-ORIENTED APPROACHES.
PRIOR TO ARRIVING AT THE INSTITUTION,
THE FDIC WILL CONTACT MANAGEMENT
AND REQUEST INFORMATION ABOUT THE INSTITUTION'S
COMPLIANCE PROGRAM AND PRACTICES.
WE REVIEW THE INFORMATION BEFORE THE START OF THE EXAM
TO HELP US FOCUS THE EXAM ON OPERATIONAL AREAS
THAT PRESENT THE GREATEST COMPLIANCE RISKS.
THE EXAM ALSO FOCUSES ON THE PROCESS YOUR INSTITUTION USES
TO ENSURE COMPLIANCE WITH FEDERAL CONSUMER PROTECTION
AND FAIR LENDING LAWS.
IN OTHER WORDS, THE ADEQUACY
OF YOUR COMPLIANCE MANAGEMENT SYSTEM OR CMS.
- AS A BOARD MEMBER, WHAT SHOULD I BE LOOKING FOR
IN OUR COMPLIANCE MANAGEMENT SYSTEM?
- THERE ARE THREE KEY ELEMENTS TO EVERY CMS,
AND YOU NEED TO PAY ATTENTION TO EACH ONE OF THEM.
THEY ARE: BOARD AND MANAGEMENT OVERSIGHT;
COMPLIANCE PROGRAM; AND COMPLIANCE AUDIT.
- SO EVA, WHY DON'T YOU EXPLAIN TO CHRIS
WHAT YOU LOOK FOR
WHEN YOU'RE ASSESSING BOARD AND MANAGEMENT OVERSIGHT?
- SURE.
WE ASSESS BOTH THE BOARD OF DIRECTORS
AND BANK MANAGEMENT'S ABILITY IN ESTABLISHING AN EFFECTIVE CMS.
TOGETHER THE BOARD AND SENIOR MANAGEMENT
SET THE TONE IN AN ORGANIZATION
WHICH INCLUDES ESTABLISHING CLEAR EXPECTATIONS
ABOUT COMPLIANCE WITH CONSUMER PROTECTION LAWS AND REGULATIONS
TO STAFF AND THIRD PARTIES,
ALLOCATING THE NECESSARY RESOURCES
TO COMPLIANCE FUNCTIONS,
AND PROVIDING FOR REGULAR REPORTS TO THE BOARD.
WE ASSESS THE EFFECTIVENESS OF YOUR POLICIES AND PROCEDURES
AND VERIFY THAT YOU HAVE APPOINTED
A COMPLIANCE OFFICER OR COMMITTEE
TO OVERSEE THIS FUNCTION
AND THAT YOU HAVE EQUIPPED THEM WITH THE TIME,
AUTHORITY AND RESOURCES TO ACCOMPLISH THE JOB.
- WHAT ABOUT THE COMPLIANCE PROGRAM?
- THE COMPLIANCE PROGRAM REVIEW
CONSISTS OF FOUR SUBSET COMPONENTS:
POLICIES AND PROCEDURES, TRAINING,
MONITORING, AND CONSUMER COMPLAINTS.
WE ASSESS YOUR ESTABLISHED POLICIES AND PROCEDURES
TO DETERMINE IF THEY PROVIDE YOUR STAFF
WITH THE GUIDANCE REQUIRED
TO PERFORM ALL BUSINESS TRANSACTIONS.
WITH TRAINING, WE VERIFY THAT IT'S SCHEDULED REGULARLY
AND THAT IT'S FREQUENTLY UPDATED
TO REFLECT CURRENT INFORMATION.
FOR MONITORING, WE ASSESS YOUR INSTITUTION'S APPROACH
IN IDENTIFYING PROCEDURAL OR TRAINING WEAKNESSES
IN AN EFFORT TO AVOID VIOLATIONS.
AND FINALLY, FOR CONSUMER COMPLAINTS,
WE ASSESS YOUR INSTITUTION'S RESPONSE PROCESS.
THE GOAL HERE IS TO ENSURE
YOU'RE HANDLING CONSUMER COMPLAINTS PROMPTLY.
PROCEDURES SHOULD BE IN PLACE FOR ADDRESSING COMPLAINTS,
AND THE INDIVIDUALS OR DEPARTMENTS
RESPONSIBLE FOR HANDLING THEM
SHOULD BE KNOWN TO ALL PERSONNEL
TO EXPEDITE A RESPONSE.
IN ADDITION, WE REVIEW COMPLAINTS
TO IDENTIFY ANY POTENTIAL ISSUES OR CONCERN
REGARDING A BANK'S PRODUCTS OR PRACTICES.
YOU SHOULD ALSO MONITOR COMPLAINTS TO AND ABOUT
ANY THIRD-PARTY ENTITY THAT PROVIDES SERVICES
ON BEHALF OF THE INSTITUTION.
- YES, THIRD-PARTY OVERSIGHT IS A BIG RESPONSIBILITY.
- OH, DEFINITELY.
INSTITUTIONS OFTEN ENGAGE OTHER BUSINESSES
TO PERFORM OR SUPPLY CERTAIN PRODUCTS OR SERVICES.
FOR EXAMPLE, YOUR INSTITUTION CONTRACTS
WITH AN OUTSIDE VENDOR TO RUN YOUR CREDIT CARD PROGRAM.
IT IS YOUR RESPONSIBILITY TO MAKE SURE
THAT THE DISCLOSURES ASSOCIATED WITH THAT PROGRAM
CONTAIN ALL OF THE INFORMATION REQUIRED BY FEDERAL REGULATION,
EVEN THOUGH THE DISCLOSURES ARE DEVELOPED
AND PROVIDED BY THE VENDOR.
AND YOU ARE ALSO RESPONSIBLE FOR ENSURING
THAT NONE OF THEIR MATERIALS USED TO MARKET THAT PRODUCT
TO YOUR CUSTOMERS
CONTAIN ANY FALSE OR MISLEADING INFORMATION
THAT MAY BE UNFAIR OR DECEPTIVE.
IT'S ALL ABOUT HAVING THE NECESSARY CONTROLS IN PLACE.
- YOU'RE RIGHT, THAT SOUNDS LIKE A MAJOR RESPONSIBILITY.
WHAT ABOUT THE FINAL ELEMENT, COMPLIANCE AUDITS?
- A COMPLIANCE AUDIT IS AN INDEPENDENT REVIEW
OF AN INSTITUTION'S COMPLIANCE PROGRAM.
THE AUDIT HELPS MANAGEMENT ENSURE ONGOING COMPLIANCE
AND TO IDENTIFY COMPLIANCE RISK CONDITIONS.
SO, IT COMPLEMENTS THE INSTITUTION'S
INTERNAL MONITORING SYSTEM.
THE BOARD OF DIRECTORS OF THE INSTITUTION
SHOULD DETERMINE THE SCOPE OF AN AUDIT,
AND THE FREQUENCY WITH WHICH AUDITS ARE CONDUCTED.
AN AUDIT MAY BE PERFORMED INTERNALLY
OR MAY BE CONTRACTED TO A QUALIFIED OUTSIDE PARTY.
BUT A BANK THAT OUTSOURCES AUDIT RESPONSIBILITIES
SHOULD MAKE CERTAIN THAT THE PROPOSED AUDIT PROGRAM
IS COMPREHENSIVE AND UP-TO-DATE WITH CURRENT LAW.
GENERALLY, A STRONG COMPLIANCE AUDIT
WILL INCORPORATE VIGOROUS TRANSACTION TESTING,
WHICH CONSISTS OF AN IN-DEPTH REVIEW
OF A SELECTED GROUP OF TRANSACTIONS.
BUT REGARDLESS OF WHETHER AUDITS ARE CONDUCTED BY BANK PERSONNEL
OR BY AN OUTSIDE PARTY,
THE AUDIT FINDINGS SHOULD BE REPORTED DIRECTLY
TO THE BOARD OF DIRECTORS OR A COMMITTEE OF BOARD MEMBERS.
DURING AN EXAM, WE LOOK TO SEE
IF THE BOARD'S AND SENIOR MANAGEMENT'S RESPONSE
TO THE AUDIT REPORT IS PROMPT.
THE COMPLIANCE OFFICER SHOULD RECEIVE A COPY
OF ALL COMPLIANCE AUDIT REPORTS
AND ACT TO ADDRESS NOTED DEFICIENCIES
AND REQUIRED CHANGES TO ENSURE FULL COMPLIANCE
WITH CONSUMER PROTECTION LAWS AND REGULATIONS.
MANAGEMENT SHOULD ALSO ESTABLISH FOLLOW-UP PROCEDURES TO VERIFY,
AT A LATER DATE,
THAT THE CORRECTIVE ACTIONS WERE LASTING AND EFFECTIVE.
- I CAN SEE WHY IT'S IMPORTANT
FOR US TO BE PROACTIVE IN THIS AREA.
IT HELPS US MANAGE COMPLIANCE RISKS.
- YES, EXACTLY.
A GOOD AUDIT PROGRAM CONSISTS OF TWO ELEMENTS:
A RISK-BASED INTERNAL AUDIT ELEMENT
AND A WELL-PLANNED EXTERNAL AUDIT.
SUCH A PROGRAM SIGNIFICANTLY LESSENS THE RISK
THAT POTENTIALLY SERIOUS PROBLEMS WILL GO UNDETECTED.
- LAST YEAR, WE HAD A COMBINED COMPLIANCE AND CRA EXAM.
I KNOW YOU SPOKE A BIT ABOUT CRA EARLIER,
BUT I'M WONDERING IF YOU CAN EXPAND ON WHAT YOU SAID,
FOR CHRIS' BENEFIT.
- OH, OF COURSE.
AS I MENTIONED BEFORE,
"CRA" IS AN ACRONYM FOR "COMMUNITY REINVESTMENT ACT".
A CRA EXAMINATION IS CONDUCTED TO EVALUATE
YOUR INSTITUTION'S RECORD OF MEETING THE CREDIT NEEDS
OF ITS ENTIRE COMMUNITY,
CONSISTENT WITH SAFE AND SOUND OPERATIONS.
WE GENERALLY LOOK AT THE DISTRIBUTION OF LENDING
TO BORROWERS OF DIFFERENT INCOME LEVELS,
TO FARMS AND BUSINESSES OF DIFFERENT SIZES,
AND TO DIFFERENT GEOGRAPHIC REGIONS
WITHIN YOUR BANK'S ASSESSMENT AREA.
GENERALLY SPEAKING,
DEPENDING ON THE SIZE OF THE INSTITUTION BEING EXAMINED,
A CRA EVALUATION MAY ALSO CONSIDER
A BANK'S COMMUNITY DEVELOPMENT ACTIVITIES
AND ITS RECORD OF PROVIDING RETAIL BANKING SERVICES
TO LOW AND MODERATE INCOME NEIGHBORHOODS.
SO TO RECEIVE CREDIT UNDER THE COMMUNITY REINVESTMENT ACT,
A BANK'S COMMUNITY DEVELOPMENT ACTIVITIES
MUST BE DESIGNED TO PROVIDE AFFORDABLE HOUSING,
TO PROMOTE ECONOMIC DEVELOPMENT,
TO PROVIDE A COMMUNITY SERVICE
FOR LOW AND MODERATE INCOME INDIVIDUALS,
OR TO REVITALIZE OR STABILIZE
LOW AND MODERATE INCOME GEOGRAPHIES.
NOW, IN SOME INSTANCES, AN INSTITUTION MAY BE EVALUATED
UNDER DIFFERENT CRITERIA.
INSTITUTIONS THAT APPLY FOR AND RECEIVE FDIC APPROVAL
MAY DEVELOP A STRATEGIC PLAN
THAT ESTABLISHES MEASURABLE GOALS
FOR MEETING ITS CRA RESPONSIBILITIES.
INSTITUTIONS DESIGNATED AS HAVING A STRATEGIC PLAN,
WILL BE EVALUATED UNDER THOSE ESTABLISHED CRITERIA.
ALTERNATIVELY, AN INSTITUTION MAY BE DESIGNATED
AS A WHOLESALE OR LIMITED PURPOSE INSTITUTION.
FOR EXAMPLE, A BANK THAT OFFERS ONLY A NARROW PRODUCT LINE,
SUCH AS A CREDIT CARD BANK, MAY SEEK SUCH A DESIGNATION.
NOW IN THESE CASES, THE EVALUATION WILL CONSIDER
THE BANK'S COMMUNITY DEVELOPMENT LOANS,
INVESTMENTS, AND SERVICES AS WELL AS ITS RESPONSIVENESS
TO THE COMMUNITY'S CREDIT NEEDS.
- EVA, YOU TALKED ABOUT THE DIFFERENT RATING SYSTEM
USED TO EVALUATE CRA.
HOW DOES THAT AFFECT OUR INSTITUTION?
- WELL, EACH INSTITUTION WILL RECEIVE
A WRITTEN PERFORMANCE EVALUATION THAT IS AVAILABLE TO THE PUBLIC.
THE EVALUATION ALONG WITH ITS RATING OF "OUTSTANDING",
"SATISFACTORY", "NEEDS TO IMPROVE",
OR "SUBSTANTIAL NON-COMPLIANCE"
IS PUBLISHED ONLINE AND CAN HAVE AN IMPACT
ON THE INSTITUTION'S REPUTATION IN THE COMMUNITY.
IN ADDITION, MAINTAINING A "SATISFACTORY" RATING OR BETTER
WILL RESULT IN LESS FREQUENT CRA EXAMINATIONS.
CRA RECORDS ARE ALSO TAKEN INTO ACCOUNT
IN CONSIDERING AN INSTITUTION'S APPLICATION FOR MERGERS,
ACQUISITIONS, AND OPENING NEW BANK BRANCHES.
- THANK YOU, EVA.
ALL THIS INFORMATION HAS BEEN VERY HELPFUL.
- YOU'RE WELCOME.
WE ALWAYS ENCOURAGE DIRECTORS TO ATTEND MEETINGS
WE HAVE WITH MANAGEMENT,
AND TO STOP BY AT ANY TIME DURING THE EXAM.