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FFIEC Provides Update of Examination Modernization Project
Tuesday, March 27, 2018 6:50 AM

The members of the Federal Financial Institutions Examination Council (FFIEC) on March 22 announced an update on its Examination Modernization Project that was undertaken as a follow-up to the review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA).

The objective of the project is to identify and assess ways to improve the effectiveness, efficiency, and quality of community financial institutions safety and soundness examination processes, particularly through increased leveraging of technology. The agencies expect these efforts to help reduce unnecessary regulatory burden on community financial institutions.

To improve the examination process, the FFIEC members have compared current processes, including the staff involved, technology utilized, products generated, and the work that is completed on-site versus off-site. Based on feedback from selected supervised institutions and examiners, the FFIEC members plan to focus initial efforts on four areas with potential for the most meaningful supervisory burden reduction:

  1. Highlight and reinforce regulator communication objectives before, during, and after examinations;
  2. Leverage technology and shift, as appropriate, examination work from onsite to offsite;
  3. Continue to tailor examinations based on risk; and
  4. 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.

As a first step, the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the State Liaison Committee (SLC) have each committed to issue reinforcing and clarifying guidance to its examination staff about the importance of being clear and transparent to community bankers during examination processes. While the National Credit Union Administration is not required to participate in the EGRPRA process, it does so voluntarily. The NCUA in 2016 launched a similar effort, its exam flexibility initiative, and the agency has incorporated parts of that initiative into its examination process.

Examiner guidance will cover the following community bank examination communication or transparency practices:

  • 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.

The FFIEC expects to take further actions on the other themes listed above and other areas of improvement that may emerge.

Get more information.