The Federal Financial Institutions Examination Council released an update on a project that identifies ways to improve the safety and soundness of financial institutions examination processes, mainly through the increased use of technology.
The FFIEC’s Examination Modernization Project is designed to reduce unnecessary regulatory burdens on community financial institutions. Back in March 2018, FFIEC identified areas with the potential for the most meaningful supervisory burden reduction. This second update is focused on tailoring examination plans and procedures based on risk, which is another area that could help reduce the regulatory burden. A risk-focused supervision process is where more resources are used to address areas of heightened risk.
The review found that the state and federal regulators have implemented similar programs and processes for risk tailoring examinations. Standard practices include 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 between examinations; and 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. Practices also include tailoring the pre-examination request list to the institution and contacting institutions between examinations to help inform an examiner’s assessment of an institution’s risk profile.
Further, examiner guidance will 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; and apply examination procedures in a way that reduces the level of review of low risk institutions or low risk areas.
Examiners will also discuss the examination plan and its rationale with institution management at the beginning of the examination.
The FFIEC was established in March 1979 to promote uniformity in the supervision of financial institutions, among other charges. The council consists of representatives from the Federal Reserve Board; the Federal Deposit Insurance Corp.; the Consumer Financial Protection Bureau; the Comptroller of the Currency; the National Credit Union Administration; and the State Liaison Committee.
The FFIEC members may take further actions as the Examination Modernization Project progresses.