FFIEC Releases Second Update of the Examination Modernization Project
December 3, 2018
The Federal Financial Institution Examination Council (FFIEC) has released the second update on its Examination Modernization Project.
The project identifies and assesses ways to improve the effectiveness, efficiency, and quality of community financial institutions safety and soundness examination processes, particularly through increased use of technology. The project is a follow-up to the review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act. FFIEC members with safety and soundness examination responsibilities expect these efforts to help reduce unnecessary regulatory burden on community financial institutions
A risk-focused supervision process is where more resources are used to address institutions or areas that present heightened risk versus those that do not. As an initial step in enhancing their respective risk-focused approaches to supervision, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the State Liaison Committee reviewed and compared principles and processes for risk focusing examinations of community financial institutions. This review concluded that the state and federal regulators have developed and implemented similar programs and processes for risk tailoring examinations. Common risk tailoring principles and practices include:
- Recognizing there are financial institutions, or areas within institutions, that present low risk, and in those cases, minimum examination procedures are generally sufficient to assess the institution’s condition and risks.
- Allocating more examination resources to higher risk areas and fewer resources to lower risk areas.
- Using data from the quarterly Call Report filings to monitor changes to the institution’s business model, complexity, and risk profile between examinations.
- Leveraging available information, including analyses and conclusions from ongoing offsite monitoring and previous examinations to determine the financial institution’s risk profile and the scope of the next examination.
- Considering the financial institution’s ability to identify and control risks when risk-focusing examinations.
- Tailoring the pre-examination request list to the institution’s business model, complexity, and risk profile.
- Contacting institutions between examinations or prior to finalizing the scope of the examination to help inform an examiner’s assessment of an institution’s risk profile.
- Following up between examinations on institutions’ actions taken to address areas in need of improvement.
The FRB, FDIC, NCUA, OCC, and SLC each committed to issue reinforcing and clarifying examiner guidance to their examination staffs on these risk-focused examination principles if necessary. Examiner guidance has or will cover the following community financial institution examination risk-focusing practices:
- Consider the unique risk profile, complexity, and business model of the institution when developing an examination plan.
- Analyze existing information such as Call Report data, publicly available information, and confidential supervisory information to help identify areas of higher and lower risk when planning examinations.
- Monitor financial institutions between examinations.
- Tailor the document request list based on the financial institution’s business model, complexity, risk profile and planned scope of review.
- Apply examination procedures in a way that reduces the level of review of low risk institutions or low risk areas.
- Discuss financial conditions, risk profiles, new or expanded business lines, and pertinent new supervisory or regulatory information with institution management prior to finalizing the scope of review.
Examiners will generally discuss the examination plan and its rationale with institution management at the beginning of the examination.
The FFIEC members may take further actions on the other areas of the examination process as the Examination Modernization Project progresses.
Question of the Week
Can a member demand that the credit union waive payments on his car loan while he is in basic training?
There are two parts to this question.
The first, is the member considered “Active Duty” and eligible for benefits under the Servicemembers Civil Relief Act (SCRA). According to SCRA guidelines, basic training is considered active duty. The member does qualify for benefits under the act which include capping the interest rate charged on the loan to 6% APR.
The second part of the question is can the member demand that the credit union waive payments on his car loan. In short, no. The service member cannot discontinue payments without being authorized by the courts. Only the courts can choose to suspend or reduce the members financial obligation if hardship can be proven.
If the member arbitrarily decides to stop making payments the credit union can attempt to collect on the obligation. This includes suing to have the obligation fulfilled. Note, this could lead to the courts granting the member a suspension of payments. In addition, you must get permission from the court before you can attempt to seize the automobile for repossession.
Abstract: Your weekly update on the regulatory landscape.
National Credit Union Administration (NCUA)
The NCUA issues fourth quarter newsletter.
The NCUA released Letter to Federal Credit Unions 18-FCU-03 which contains the 2019 Operating Fee Schedule.
The NCUA along with the other regulatory agencies released a joint statement encouraging depository institutions to explore innovative approaches to both meet the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance obligations and to further strengthen the financial system against illicit financial activity.
Federal Financial Institution Examination Council (FFIEC)
The FFIEC provided a second update on its Examination Modernization Project. The second update is focused on tailoring examination plans and procedures based on risk, which is another area that holds promise for reducing burden.
Federal Emergency Management Agency (FEMA)
The FEMA released that Congress has temporarily extended the National Flood Insurance Program’s (NFIP) authorization until Dec. 7, 2018.
Federal Trade Commission (FTC)
The FTC released the second Consumer Protection Data Spotlight which finds that seniors are sending thousands in cash to scammers claiming to be their grandchildren.
The FTC has filed a complaint against LendingClub Corporation. According to the complaint, Lending Club falsely promises consumers that they will receive a loan amount with “no hidden fees,” when, in actuality, the company deducts hundreds or even thousands of dollars in hidden up-front fees from the loans.
Office of Foreign Assets Control (OFAC)
OFAC has updated the SDN list as of Nov. 28, 2018. The last update prior to this was Nov. 13, 2018.
Questions? Contact the Compliance Hotline: 1.800.546.4465; firstname.lastname@example.org.
Posted in Compliance.