Four areas that have potential to provide “the most meaningful supervisory burden reduction” will be the focus of the federal financial institution regulators as they pursue continued examination modernization, the federal umbrella group for the regulators said Thursday.
The Federal Financial Institutions Examination Council (FFIEC), in a release, said the four areas are:
- Highlight and reinforce regulator communication objectives before, during, and after examinations;
- Leverage technology and shift, as appropriate, examination work from onsite to offsite;
- Continue to tailor examinations based on risk; and
- Improve electronic file transfer systems to facilitate the secure exchange of information between institutions and supervisory offices or examiners.
“Although, the members’ initial efforts will be focused on the above four themes, the Examination Modernization Project is expected to be a long-term endeavor and other areas of improvement may emerge,” the FFIEC said in its release.
According to FFIEC, the regulators determined the four areas of regulatory reduction through the review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). The National Credit Union Administration (NCUA) is not required to participate in the EGRPRA but does so voluntarily.
FFIEC said the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC), and the State Liaison Committee (SLC) of the exam council (made up of representatives of state financial institution regulatory agencies) will issue reinforcing and clarifying guidance to its examination staff about the importance of being clear and transparent to community bankers during examination processes.
(NCUA, the council noted, in 2016 launched a similar effort – the exam flexibility initiative – and has incorporated parts of that initiative into its examination process.)
Community bank examiner guidance, the council said, will cover communication or transparency practices to:
- Assist community financial institutions to prepare for the examination by providing prior notification and addressing spacing needs, staffing, and logistics.
- Tailor the examination request list and scope to the unique risk profile and business model of the institution.
- Facilitate the secure exchange of information between institution management and examiners.
- Inform institution management of areas under review and provide management the opportunity to communicate any additional information or clarification before the conclusion of the examination.
- Establish clear expectations regarding items the financial institutions are expected to address.