Firms need to be prepared in a variety of ways. We cannot live in a reactive environment, but be proactive to make sure the right risk parameters are in place regardless of the changes that impact an organization. The negative ramifications that could occur, can really have an impact on the firm’s risk management practices. Below are 3 tips for banks preparing for regulatory examinations-

1.Adapt and Act Upon Changes  

Anytime a new rule, regulation, change in management approach or the overall risk changes in a firm, you must make the necessary updates to policies, procedures and related IT systems. Think of it this way. Does your data management system or risk governance structure get impacted by the above-mentioned changes? Yes, it does. That means you need to look at every component and make sure it is updated properly. What happens if it doesn’t? Then the data coming out is only as good as the data going in. It will not match up with your firm’s new approach or change. For example, we have seen far too many times when a rule goes into effect, but the right infrastructure has not been adopted. 

2.Training/Education 

Education is another component that needs to be strongly considered as the final step in a new or changed risk approach. If your staff are not properly educated on these changes, then does change really occur? Probably not. We are not talking about high-level education to “tick the box,” but granular training that shows the impact on each team and person. Staff need to understand exactly what has changed and how they will alter their responsibilities. 

A simple three-step approach is to 

1. Meet with everyone and go through the changes so questions can be answered in an open forum. This allows everyone to hear the Q&A. 

2. Takeaways or cheat sheets. Not everyone is going to memorize the changes, so retention is key. Provide the changes in a short, but sweet one-page that staff can refer to. 

3. Refresh, refresh, refresh. Continued dialogue is important not only to reinforce the content but to see if staff members have any suggestions or ideas. Feedback is important to see if anything if anything

3.Communication to Customers 

Once the staff is trained, then communication to customers is next. Staff needs to understand thoroughly so the right messages can be passed onto customers. This can be provided in different ways, but coordination with other departments that deal with customers is key. Whether it’s print or online ads, messages in the branch or office, or conversations with customers in person so they have all the facts to make a decision. 

Conclusion 

Finally, if everything discussed above has been done correctly, then dealing with regulators should not be difficult. Regulators want to see whether policies, procedures and systems have been updated based on the firm’s changes and if they are being followed. Regulators will test each component during an examination to see if any gaps or opportunities exist. But don’t wait for the regulators to come in to find out if everything is working. Periodic testing should be conducted so the anxiety and stress are alleviated when examiners come in the door.  

Excerpt from our fair lending whitepaper “Improving Fair Lending With AI

Contributors:

  1. Yogesh Pandit
  2. Justin Muscolino
  3. Michael (Mickey) Marshall
  4. Bob Browne
  5. Arun Iyer

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