Though its probably been a year or two (or 10 or 20) since your school days, the idea still rings true that the best way to prepare for an examination is to know what is going to be on the examination. That was true in then, and it’s true in a compliance examination, too. Spending time becoming familiar with what the examiners will be working with in your next examination is a vital part of a well-rounded compliance program. And since the FDIC updated its manual in December 2015 with some fairly significant changes, it’s the perfect time for a study session.
There were five major areas of change in the compliance examination manual in this latest update.
First of all, the FDIC revised the report of examination templates. This is the model that regulators use to convey the results of their examination to the financial institution. The sample includes both a compliance report of examination and Community Reinvestment Act performance evaluation for a hypothetical, FDIC-supervised bank. The templates also include a sample CRA Performance Evaluation, whihc is used to document an assessment of an institution’s record of helping to meet the credit needs of its communities, consistent with safe and sound practices.
Matters Requiring Board Attention
Secondly, the revised examination manual includes new guidance on MRBAs, or matters requiring board attention. MRBAs are typically used when significant issues are identified in an examination that requires attention from the board of directors or senior management. This guidance draws attention to important information about weaknesses in a compliance management system, depending on the facts and circumstances at a particular bank.
Evaluating the Impact of Consumer Harm
The third major revision is guidance on evaluating the impact of consumer harm. There are a variety of ways consumer harm can occur, including quantifiable harm, non-quantifiable harm, and potential harm. Examiners have only so much time they can spend on each examination, and the ability to evaluate the potential impact of consumer harm helps them allocate their resources accordingly. Guidance found in this section of the manual leads examiners in determining the impact of consumer harm.
Assessment of Risk of Consumer Harm
The fourth revision is related to the third, and concerns the Assessment of Risk of Consumer Harm, or ARCH. ARCH is initiated during the pre-examination process and helps examiners scope out where to focus their examination activities. The manual includes a series of questions to guide examiners through the analysis of documenting aspects like inherent risk, mitigating factors, and the reidual risk of potential consumer harm. Depending on these answers, examiners can determine which specific areas to focus upon for a banks examination.
Integrated Disclosure Rule
The fifth and final notable revision is the one that has been getting a lot of attention lately, and that is the TILA-RESPA Integrated Disclosure Rule. The Truth in Lending portion clocks in at 180 pages, and the RESPA side runs a mere 55 pages. The revised examination procedures pertaining to these integrated acts are included in the manual
You can download the complete manual, and now, if you prefer, you can download just individual chapters. From that link, you can also download the famous Bank of Anytown’s compliance report of examination as well as its CRA performance evaluation.