Pub. 5 2017 Issue 1

Issue 1. 2017 9 follow proper third-party risk management practices outlined in FIL-44-2008. • Stop waiting to engage with regulators only during exam- inations: Despite overall lower level of criticisms, 18% of institutions providing feedback were not satisfied with the results of their examinations. There are lessons to be drawn from these institutions’ experience. Not surprisingly, the percent of respondents unsatisfied with the results of their examination increases to 28% when the examiner-in-charge has been supervising bank examinations less than three years and decreases to 15% when the EIC has over ten years expe- rience. In the words of a respondent, “younger examiners are much more concerned about details than intent and safety and soundness.” However, this may be misleading. The true root of the issue lies with the fact that respondents are six time more likely to be satisfied with their examination results when they report that the “examiner was knowledgeable about [their] institution.” Additionally, over 50% of those dissatisfied reported that there were “points in the final exam findings which came as a surprise to the institution.” Areas which came as a surprise include: o “Restating call report based on the recognition of credit losses” o “Appraisal process issues” o “Concerns that directors have delegated the loan approval function to management” o “Higher standard since we were approaching a key asset level” These findings indicate that the best way to be satisfied with your examination results is to engage in open dialog with examiners both during and outside of examination periods. The added benefit is that even though the EIC’s experience is a factor outside of the bank’s control, effects of inexperience should be somewhat mitigated with regular communication. FinPro has found that an institution’s greatest chance for success in avoiding surprises during the examination process is to stay educated on regulatory hot topics, use exam preparation reports, and control regular conversations with regulators by utilizing robust internal risk management (i.e. ERM) program reports. • Continue providing examination feedback in the RFI and engaging State Associations on legislation issues: As we enter 2017 with a new administration there is a lot of talk about the future of Dodd Frank, Glass Steagall, GLB, CFPB, etc. Strategy consultants and banking associations’ govern- ment relations groups are institutions’ greatest advocates for improving bank policy and regulation at the federal level. Banks who complete the RFI survey provide guidance as to what “key issues they feel would reduce regulatory burden or increase the success of their next examination.” We are listening and are engaging in the necessary discussions on feedback received through the RFI: o Removing stigma of brokered deposits o Implementing risk based examinations o Bifurcation of agencies based on institutions’ size o Alleviating data required to fulfill HMDA require- ments o Reducing compliance burden on residential lending (TRID) Following these lessons is the start to improving the examina- tion process. We hope to continue publishing these articles to 1: let you know that the Banking Associations are acting on your feedback, and to 2: assist you with navigating the regulatory envi- ronment. We encourage all institutions to complete the survey so that this initiative can continue to be a success. Completed a compliance or safety and soundness exam in the last twelve months? Let your voice be heard and visit http://www.all - bankers.org/request.php to share anonymous information about your last examination. Have an upcoming examination? Contact the Utah Bankers Association to request a Custom Exam Preparation Report at 801-364-4303 or bwilkes@uba.org . n Authors: Don Musso and Stephen Brown Klinger of FinPro Inc. Contact them at 908-234-9398 or by emailing finpro@finpro.us . Howard Headlee, President and CEO of Utah Bankers Association. Howard can be contacted at 801-214-7722 or by emailing howard@uba.org .