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Compliance Part 1: Exam Processes, Report Prep, and CMS_COLOMBO > CMS_AC > Flashcards

CMS_AC Flashcards

1
Q

What three types of supervisory activities does the FDIC conduct to review an institution’s CMS?

A

Compliance examinations, visitations, and investigations

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2
Q

What is the primary means the FDIC uses to determine whether a financial institution meets its responsibility to comply with the requirements and proscriptions of federal consumer protection laws and regulations?

A

Compliance examinations

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3
Q

Why does the FDIC conduct visitations (3)?

A

to review the compliance posture of newly-chartered institutions or those converting to state non-member status;

to review progress on corrective actions or compliance with an enforcement action in the interval between examinations;

or to investigate problems brought to the attention of the FDIC.

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4
Q

Purpose of visitations?

A

Visitations are usually targeted events aimed at specific operational areas, or an entire CMS previously identified as significantly deficient

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5
Q

Purpose of investigations?

A

Conducted primarily to follow-up on particular consumer inquiries or complaints, including FL complaints

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6
Q

Purpose of compliance examinations (3)?

A
  • assess the quality of an FDIC-supervised institution’s CMS (see “Evaluating the Compliance Management System”) for implementing federal consumer protection statutes and regulations;
  • review compliance with relevant laws and regulations; and
  • initiate effective supervisory action when elements of an institution’s CMS are deficient and/or when violations of law are found.
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7
Q

FDIC compliance examinations blend ____ and ____ approaches.

A

Risk-focused; process-oriented

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8
Q

Risk-focusing involves (3):

A
  • developing a compliance risk profile for an institution using various sources of information about its products, services, regulations (PSRs), organizational structure, operations, and past supervisory performance;
  • assessing the quality of an institution’s CMS in light of the inherent risks associated with the level and complexity of its business operations and product and service offerings; and
  • testing selected transactions based on residual risk
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9
Q

What is considered under Board and Management Oversight (8)?

A

Commitment to and oversight of CMS.

Level of resources dedicated to compliance functions.

Third-party due diligence

Change management (Anticipation and responsiveness to changes in applicable laws and regulations, market conditions, and products and services offered)

Due diligence in advance of product or service changes (pre- and post-implementation)

Comprehension and identification of compliance risks, including emerging risks in the bank’s products, services, and other activities

Management of identified risk (self-assessments)

Identification of and responsiveness to compliance risk management deficiencies, violations, and remediation.

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10
Q

What is considered under the Compliance Program (5)?

A

Policies and procedures

third-party management

compliance training

monitoring & audit

consumer complaint response

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11
Q

Who at the bank is responsible for complying with all federal consumer protection laws and regulations?

A

Board of Directors and management

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12
Q

The FDIC expects BOD and management to have a system in place to effectively manage its compliance risk, consistent with the _____.

A

Size & complexity of its products, services, and markets.

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13
Q

Is a bank required to have all elements of a CMS?

A

NO, and many institutions do NOT.

Conclusions about the adequacy of a bank’s CMS must be based on the effectiveness of those elements that are in place, taken as a whole, for that bank’s particular operations.

Each bank has a CMS that is adequate for the compliance responsibilities that are necessary due to its operating environment.

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14
Q

Role of the Compliance Examiner- examiners must (4):

A
  • establish an examination scope focused on areas of highest consumer harm risk;
  • evaluate an institution’s CMS;
  • conduct transaction testing
  • report findings to the Board of Directors and management of the institution.
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15
Q

As part of the examination process, examiners are expected to (3):

A
  • take a reasoned, common sense approach to examining and use sound judgment when making decisions;
  • maintain ongoing communication with bank management throughout an examination;
  • assist an institution to help itself improve performance by providing management with sound recommendations for enhancing its CMS;
  • share experiences and knowledge of a successful CMS; and
  • provide guidance regarding the various consumer protection and fair lending laws and regulations.
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16
Q

What are the 3 stages of a compliance examination?

A
  1. Pre-exam planning
  2. Review and analysis (on and off-site)
  3. Communicating findings to bank management via meeting and ROE
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17
Q

What does pre-exam planning involve (3)?

A

gathering information available in FDIC records and databases

contacting the bank to review and narrow the draft request for information and documents, and

delivering a letter to the institution requesting specific information and documents for detailed analysis by the examination team

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18
Q

What occurs during the review and analysis stage?

A

An examiner thoroughly evaluates an institution’s CMS & documents system weaknesses and violations (if any)

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19
Q

Examination resources are focused on addressing what?

A

Areas of HIGHEST consumer harm risk

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20
Q

Examiners must consider WHAT when evaluating the CMS?

A

Size, level, and complexity of a bank’s operations

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21
Q

What is the purpose of the ROE?

A

Provides an account of the strengths and weaknesses of a CMS to the Board of Directors and management.

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22
Q

Laws and regulations are legally ___ and ___.

A

legally binding and enforceable

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23
Q

What has the force and effect of law?

A

A law or regulation

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24
Q

What is supervisory guidance?

A

Unlike a law or regulation, supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance.

Rather, supervisory guidance outlines the agencies’ supervisory expectations or priorities and articulates the agencies’ general views regarding appropriate practices for a given subject area.

Supervisory guidance often provides examples of practices that the agencies generally consider consistent with safety-and-soundness standards or other applicable laws and regulations, including those designed to protect consumers

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25
Q

The FDIC’s consumer compliance examination process is ____.

A

Risk-focused

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26
Q

What is Consumer Harm?

A

An actual or potential injury or loss to a consumer, whether such injury or loss is economically quantifiable (e.g., overcharge) or non-quantifiable (e.g., discouragement).

It may be caused by a financial institution’s violation of a federal consumer protection law or regulation directly or through a third party or reflects weaknesses in a financial institution’s compliance management system

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27
Q

What three ways can consumer harm occur?

A

Quantifiable harm

Non-quantifiable harm

Potential harm

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28
Q

What is quantifiable harm?

A

Economic harm to a consumer where the injury or loss can be measured.

MONETARY

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29
Q

What type of consumer harm are these:

(1) consumer may suffer monetary harm as a result of deceptive marketing practices that entices a consumer to purchase a product without having accurate information regarding the benefits, costs, or terms of the product in violation of Section 5 of the Federal Trade Commission Act.
(2) Bank employs a pricing structure that allows significant discretion, without effective monitoring or controls, resulting in a protected class of borrowers being charged higher prices on average than similarly situated non-protected borrowers in violation of the Equal Credit Opportunity Act, then the higher prices paid by the protected class of borrowers over similarly situated non-protected borrowers.

A

Quantifiable harm

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30
Q

What is non-quantifiable harm?

A

Injury or loss to the consumer that cannot be measured, or is very difficult to measure, yet the consumer may suffer some form of economic or other harm.

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31
Q

What type of consumer harm is this?

A

Financial institution unfairly denies the consumer
credit or discourages an application on a prohibited basis in violation of the Equal Credit Opportunity Act

Consumer injured economically, but calculating the monetary value for the injury would be challenging

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32
Q

What type of consumer harm is this?

Bank imposes additional, unlawful requirements on consumers before the bank is willing to consider the consumers’ billing disputes or requirements that are not accurately divulged in the bank’s error resolution disclosures.

A

Non-quantifiable harm

The practices could discourage a consumer from filing a dispute. Consumer harm exists, but may be difficult to identify and/or quantify.

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33
Q

What is potential harm?

A

Involves financial institution activities (or failure to take action) that create the possibility that a consumer may be harmed.

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34
Q

What type of harm is this?

Violation of the regulations that implement the National Flood Insurance Act of 1968 where the financial institution failed to require flood insurance on a residence at loan closing.

A

Potential harm

The consumer has not suffered actual loss but is exposed to potential economic loss should a flood occur.

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35
Q

The FDIC’s mission of promoting public confidence in the financial system is best served through a supervisory approach focused on ______

A

Identifying, addressing, and preventing consumer harm

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36
Q

How do examiners identify consumer harm?

A

By identifying the inherent risks of consumer harm that may occur in a bank’s business activities.

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37
Q

What is inherent risk?

A

The compliance risk associated with product and service offerings, practices, or other activities that could directly or indirectly result in significant consumer harm or noncompliance with consumer protection rules and regulations.

Inherent risk refers to the risk that a product, service, practice, or other activity would pose if no controls or other mitigating factors were in place.

Ex: a new loan product, a change to deposit account terms, or a third party relationship

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38
Q

How do examiners address identified inherent risks of consumer harm?

A

When inherent risks of consumer harm are identified, examiners will ensure that the bank takes appropriate actions to address or mitigate these risks

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39
Q

How do examiners prevent consumer harm?

A

Mitigating factors are the strength of the CMS to mitigate inherent risk.

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40
Q

Examples of mitigating factors?

A

strong management controls, effective training programs, and on-going monitoring efforts.

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41
Q

What are the FDIC’s supervisory strategies designed to do?

A

To promote compliance with consumer protection laws and regulations in FDIC-supervised institutions

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42
Q

How do examiners evaluate risks of consumer harm?

A

through an analysis of an institution’s historical CMS, the products and services currently offered, the markets served, and existing and new third-party relationships.

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43
Q

What is residual risk?

A

The risk exposure that remains after identifying the level of inherent risk and factoring in the strength of the mitigating factors to control that risk.

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44
Q

Risk-scoping formula

A

inherent risk - mitigating factors = residual risk

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45
Q

What is the level of risk in this example?

Bank introduces a new overdraft program with no due diligence, no monitoring or auditing, and numerous customer inquiries.

A

HIGH RISK product without effective CMS elements to mitigate inherent risk

inherent risk= high
mitigating factors= none
residual risk= high

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46
Q

The FDIC classifies violations of federal consumer laws based, in part, on what?

A

the level of risk of consumer harm

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47
Q

What should be communicated when a violation is identified?

A

severity, extent, or potential consumer harm caused by the violation

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48
Q

What does appropriate corrective action consider?

A

overall effectiveness of the institution’s CMS, the root cause(s) of the deficiencies, and extent and impact of consumer harm.

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49
Q

Why are communication and technical assistance to supervised institutions an important component of the FDIC’s supervisory approach in preventing consumer harm?

A

It supports institutions efforts to maintain an effective CMS!

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50
Q

When is communication especially important?

Examples of FDIC communication channels?

A

During periods of regulatory change and transitions!

CHANNELS: national and regional bankers’ teleconferences on emerging topics; speaking engagements at national, regional, state, and local conferences and conventions; a web-based regulatory calendar; Supervisory Insights Journal articles; regional newsletters; banker and bank director trainings and online technical assistance videos; meetings with industry trade groups; and issuance of guidance through Financial Institution Letters

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51
Q

How does communicating the focus of FDIC examination efforts and supervisory priorities through these diverse channels assists bankers?

A

Helps them in identifying and reviewing key areas of concern and addressing deficiencies promptly, prior to and unrelated to a specific examination activity.

In addition, examiners can provide certain types of technical assistance to community bankers during the course of an examination that may enable an institution to reduce the risk of consumer harm in the operation of its business.

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52
Q

Communication and technical assistance give bankers the tools for what?

A

To address issues that may pose consumer harm

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53
Q

What are the elements of an effected CMS?

A

Board and management oversight

Consumer compliance program

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54
Q

What can noncompliance result in?

A

Monetary penalties, litigation, and formal enforcement actions

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55
Q

Who is responsible for ensuring that the bank and its third-parties are in compliance?

A

Board and management

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56
Q

Who is ULTIMATELY responsible for developing and administering a CMS that ensure compliance with federal consumer protection laws and regulations?

A

The BOARD

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57
Q

What are key actions that the Board and management can take to demonstrate their commitment to maintaining an effective CMS and to set a positive climate for compliance (8)?

A
  • demonstrating clear and unequivocal expectations about consumer compliance, not only within the institution, but also to third-party providers;
  • adopting clear policy statements;
  • appointing a compliance officer with authority and accountability;
  • allocating resources to compliance functions commensurate with the level and complexity of the institution’s operations;
  • anticipating and evaluating changes in the institution’s operating environment and implementing responses across impacted lines of business;
  • identifying compliance risk in the institution’s products, services, and other activities, and responding to deficiencies and violations;
  • conducting periodic compliance audits; and
  • providing for recurrent reports by the compliance officer to the Board.
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58
Q

What sets the tone on compliance?

A

Leadership on compliance by Board & management

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59
Q

Regardless of size or institution complexity, what is the first step Board and management should take in providing for the administration of the compliance program?

A

Designate a compliance officer!

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60
Q

Compliance officers must have the authority and independence to do what three things?

A
  • cross departmental lines;
  • have access to all areas of the institution’s operations; and
  • effect corrective action.
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61
Q

T or F:

A compliance committee, as an alternative to or in addition to a full-time compliance officer, could be formed consisting of the compliance officer, representatives from various departments, and member(s) of management or the Board

A

TRUE

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62
Q

What are a compliance officer’s general responsibilities, regardless of the size or complexity (7)?

A
  • developing compliance policies and procedures;
  • training management and employees in consumer protection laws and regulations;
  • reviewing policies and procedures for compliance with applicable laws and regulations and the institution’s stated policies and procedures;
  • assessing emerging issues or potential liabilities;
  • coordinating responses to consumer complaints;
  • reporting compliance activities and audit/review findings to the Board; and
  • ensuring that corrective actions are implemented in a timely fashion and are effective at preventing recurrence.
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63
Q

True or false: Board and Management are not ultimately responsible for identifying and controlling compliance risks arising from third-party relationships?

A

FALSE

Board and Management is responsible to the same extent as if the third-party activity was handled within the institution.

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64
Q

While an effective compliance risk management process for third-parties will vary depending on complexity and risk profile of the third-party relationship, what is generally included in the process (4)?

A
  • Risk assessment
  • Due diligence in selecting the third-party provider
  • Appropriate contract structuring and review, and
  • Sufficient oversight of third-party activities, including adequate quality control over products or services provided.
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65
Q

What are the components of a Consumer Compliance Program?

A
  • Policies and procedures
  • Training
  • Monitoring and/or Audit
  • Consumer complaint response
66
Q

Why should banks establish a formal, written compliance program (4)?

A
  • Planned organized effort to guide compliance activities
  • Source document that serves as a training and reference tool
  • Will prevent or reduce regulatory violations & provide cost efficiencies
  • Sound business step
67
Q

T or F: A compliance program is static (i.e. unchanging)

A

FALSE

Must be dynamic and constantly amended to focus resources where they are needed most based on risks.

68
Q

What is the formality of a compliance program dictated by (6)?

A
  • institution’s size, number of branches, and organizational structure;
  • business strategy of the institution (e.g., community bank versus regional; or retail versus wholesale bank);
  • complexity of products and services offered;
  • staff experience and training;
  • type and extent of third-party relationships;
  • location of the institution—its main office and branches; and
  • other influences, such as whether the institution is involved in interstate or international banking.
69
Q

Is a written compliance program required?

A

NO- the program’s EFFECTIVENESS is more important than its formality

Ex: Especially true for small banks- program not in writing but an effective monitoring system ensure overall compliance

70
Q

When does a written compliance program become more important?

A

During periods of expansion or staff turnover

Because individuals with the particular knowledge or experience may no longer be with the institution or available for contact.

71
Q

What do effective policies and procedures include (4)

A

Policies should be established that include goals and objectives and appropriate procedures for meeting those goals and objectives.

Information needed to perform a business transaction (i.e. applicable regulation cites and definitions, sample forms with instructions, institution policy, and, where appropriate, directions for routing, reviewing, retaining, and destroying transaction documents)

72
Q

Compliance policies and procedures are the means for ensuring what?

A

Ensuring consistent operating guidelines that support the institution in complying with applicable federal consumer protection laws and regulations (directly and through third-parties)

73
Q

Who should be responsible for compliance training and establishing a regular training schedule for Directors, management and staff (and third-parties where appropriate)?

A

Compliance Officer

74
Q

Line management and staff should receive ___, __, and ___ training in laws and regulations, and internal policies and procedures that directly affect their jobs.

A

timely, specific, comprehensive

75
Q

What characteristics does an effect compliance training program include (4)?

A

Training to all staff, management, and Board (third parties as applicable) relevant to their jobs

Regular training schedule

Periodic assessment of employee knowledge and comprehension of the subject matter

Training content that is frequently updated with current, complete and accurate information on products, services, and business operations of the bank. As well as, laws and regulations, policies and procedures, and emerging issues.

76
Q

What is monitoring?

A

proactive approach by the institution to identify procedural or training weaknesses in an effort to preclude regulatory violations

77
Q

What is an audit?

A

An independent assessment and validation of an institution’s system of internal controls, operations, and compliance risk management framework.

Complements the monitoring system.

78
Q

Who can perform audits?

A

Internally (in-house) or by an external party (such as consultant or accountant) as long as the individuals that perform the audits are independent of the areas being audited

79
Q

Banks should have monitoring and/or audit

functions that are appropriate for their ___, ___, and ____.

A

size, complexity, risk profile

80
Q

T or F:

If an institution has strong monitoring but no audit, all risks are appropriately mitigated.

A

False - audit and monitoring each play an important but different role in supporting a strong CMS.

For many banks, both are necessary

81
Q

Effective monitoring includes regularly scheduled reviews of what (7)?

A
  • disclosures and calculations for various product offerings;
  • document filing and retention procedures;
  • posted notices, marketing literature, and advertising;
  • various state usury and consumer protection laws and regulations;
  • third-party service provider operations; and
  • internal compliance communication systems that update and revise the applicable laws and regulations to management and staff.
82
Q

Monitoring also includes reviews at the ___ level?

A

TRANSACTION LEVEL!

at the transaction level during the normal, daily activities of employees in every operating unit of the institution.

83
Q

Who should determine the scope and frequency of audits?

A

The Board

84
Q

What factors should be considered when determining the scope and frequency of audits (9)?

A
  • expertise and experience of various institution personnel;
  • organization and staffing of the compliance function;
  • volume of transactions;
  • complexity of products offered;
  • number and type of consumer complaints received;
  • number and type of branches;
  • acquisition or opening of additional branch(es);
  • size of the institution;
  • organizational structure of the institution;
  • outsourcing of functions to third-party service providers, including a review of agreements signed or made between the institution and vendors;
  • degree to which policies and procedures are defined and detailed in writing; and
  • magnitude/frequency of changes to any of the above.
85
Q

Generally, what will a strong consumer compliance audit incorporate?

A

Vigorous transaction testing!

86
Q

Who should audit findings be reported to?

A

Directly to the Board to a committee of the Board

87
Q

What should a written consumer compliance audit report include (4)?

A
  • scope of the audit (including departments, branches, product types and third-party relationships reviewed);
  • deficiencies or modifications identified;
  • number of transactions sampled by category of product type; and
  • descriptions of, or suggestions for, corrective actions and time frames for correction.
88
Q

What does an effective consumer complaint response include (5)?

A
  • Prompt complaint responses
  • Established procedures for addressing complaints
  • Designated individuals or departments responsible for handling complaints- known to all institution personnel to expedite responses.
  • Compliance officer who is aware of all complaints and acts to ensure a timely resolution; and determines the root cause and ensures corrective action
  • Monitor complaints to and/or about third parties providing services on behalf of the bank
89
Q

II. REVIEW AND ANALYSIS

A

N/A

90
Q

What does the review period or scope typically cover?

A

Bank activities conducted from the start date of the prior exam through the start date of the current exam

91
Q

What is the goal of a risk-focused, process-oriented exam?

A

To direct resources towards areas with higher degrees of risk of consumer harm

92
Q

What does the Assessment of Risk of Consumer Harm (ARCH) describe?

A

The focus of the exam, including issues to be investigated and the PSRs that exhibit residual risk

93
Q

DEVELOPING A RISK PROFILE

A

N/A

94
Q

The ARCH documents areas of inherent risk by considering what three areas:

A

Institution structure

Supervisory history

Operational areas- PSR risk

95
Q

What is considered when determining the inherent risk of an Institution’s Structure? (4)

A

o Significant factors or changes

o Mergers or acquisitions

o Significant growth since prior examination

o De Novo status

96
Q

What is considered when determining the inherent risk of Supervisory History? (6)

A

o Current and past enforcement actions

o Reimbursement history

o History of FL compliance

o Current and prior exam ratings and recommendations

o Consumer-related litigation

o Consumer complaints

97
Q

What is considered when determining the inherent risk of Operational Areas- PSRs (7)?

A

o Major product lines

o New or revised PSRs

o Applicable regulations

o Recent case law

o Growth in operations

o Complexity of operations

o Third party affiliations

98
Q

What is regulation risk?

A

Measures the possible consequences (to the bank and its customers) of noncompliance with specific regulations

Recognizes that the impact of noncompliance differs depending on the consumer law or regulation.

99
Q

What is regulation risk for the public?

A

The measurement of relative adverse financial impact or other harm that noncompliance may produce

100
Q

What is regulation risk for the bank?

A

Measurement of legal, reputation, and financial harm that noncompliance may produce

101
Q

What factors affect the level of regulation risk (4)?

A
  • Potential financial and/or reputation harm to consumers;
  • Potential legal, reputation, and financial harm to the bank;
  • New laws, regulations, or amendments
  • Volume of transactions subject to a specific regulation.
102
Q

In order to properly assess a bank’s risk, the EIC or designee also reviews ____, which may or may not mitigate the identified inherent risks:

A

the CMS

103
Q

When does residual risk exist?

A

When inherent risk is not sufficiently mitigated by the CMS

104
Q

Risk-scoping formula?

A

Inherent risk- mitigating factors= residual risk

105
Q

T or F:

One element of a bank’s CMS may influence another area

A

True!

Be aware of relationships and their mutual impact.

106
Q

What other CMS element may be impacted in this example?

The initial review of institution practices identifies a lack of audit of loan denials

A

The examiner should look to see whether monitoring procedures are in place to mitigate the impact of the lack of audit procedures.

The existence of monitoring procedures may lead the examiner to determine that the absence of an audit does not raise the institution’s risk profile

107
Q

What other CMS element may be impacted in this example?

Initial review of policies and procedures identifies well-organized, appropriate, and up to date guidelines for deposit compliance management.

A

The examiner should also consider the institution’s record of oversight in this area.

If deposit compliance has historically suffered from poor management oversight, then the existence of written procedures should be given less weight when determining the risk profile.

108
Q

DEVELOPING THE ARCH

A

N/A

109
Q

What is described in Section 1 of the ARCH? Section 2? Section 3? Section 4?

When should Sections 1-4 be completed and approved?

A

Section 1: Institution structure and supervisory history

Section 2: Initial assessment of the CMS

Section 3: ID inherent risks related to the bank’s operations, followed by an analysis of whether each inherent risk is low, mitigated, or results in residual risk of consumer harm.

Section 4: PSRs summarized

Sections 1-4 should be completed and approved by a supervisor or delegated designee prior to the start of the examination

110
Q

When should Section 5 of the ARCH be used?

A

If material changes to the scope of the exam are warranted

111
Q

T or F:

The questions in the ARCH cover every potential risk.

A

False: the questions set out a basic framework to assist examiners in assessing and documenting consumer harm.

But examiners are not limited to these questions, and should consider all relevant facts when evaluating a bank’s risk profile

112
Q

ENTRANCE MEETING

A

N/A

113
Q

What is the purpose of an Entrance Meeting?

When should it be conducted?

A

Purpose: facilitate the discussion of various admin items and the scope of the exam

ASAP after beginning the exam

114
Q

What is discussed during the Entrance Meeting (10)?

A

Overview of the exam process (info collected during PEP and its impact on SCOPE)

Names of FDIC examiners (on-site or off-site)

Length of Exam

Activities expected to be conducted on-site and off-site

EIC availability to discuss exam issues or FDIC policy

Primary contacts for exam issues

Issues identified during PEP, areas with significant risk that will receive close attention

PEP materials requested but not received

Exit meeting procedures

Date of next Board Meeting

Any issues with CRA and FL review

115
Q

ONGOING COMMUNICATION

A

n/a

116
Q

When should issues of concern be discussed with management?

A

AS THEY ARISE (to the extent possible)

117
Q

REVIEW OF CMS

A

N/A

118
Q

When reviewing the CMS, examiners should (4):

A
  • Determine the quality of the institution’s CMS (degree to which management has taken a proactive approach to compliance and whether management can demonstrate its ability to assure compliance with federal consumer laws and regulations)
  • Assess whether the CMS is effective at facilitating compliance
  • Identify potential deficiencies in the CMS and areas of greatest risk of consumer harm
  • Determine where transaction testing is necessary
119
Q

What materials should be reviewed at minimum when evaluating the adequacy of Board and Oversight? (9)

A

Examiner-determined risk profile as relates to oversight

Prior Exam reports

Meeting minutes (Board, Compliance Committee, etc.)

New/amended policies or procedures

Files related to receipt and resolution of complaints (bank, CRC reports, etc.)

Management responses and follow-up to findings (exam, monitoring, audits)

Third party agreements

Org Charts and management resumes

Examiner Notes

120
Q

What materials (at a minimum) should examiners review to determine the adequacy of Policies and procedures (4)?

A
  • The examiner-determined risk profile of the financial institution as it relates to policies and procedures, including the institution’s business strategy, product offering, branches, third party relationships, etc.
  • Compliance-related policies and other written compliance procedures
  • Board minutes, Compliance Committee minutes, and other committee minutes, as applicable
  • Examiner notes
121
Q

What should policies and procedures cover at a minimum (10)?

A 
Compliance Policy
Lending
Deposits
Electronic Banking
Privacy
Non-deposit products (NDIP)
Branch Closing Policy 
TILA Policy
FCRA
Overdraft Programs
122
Q

What should be included in the Compliance Policy?

A
  • Specific guidance on daily compliance activities

- Responsibilities and authorities of the compliance officer, Compliance Committee, and individual employees.

123
Q

What banks are required to have a Branch Closing Policy?

A

Section 42 of the Federal Deposit Insurance Act requires every financial institution that has one or more branch locations to maintain a branch closing policy

124
Q

What are the six areas that require written policies and procedures?

A 
Branch Closing
EFT Remittance Transfers
TILA
FCRA
Safe Act
NDIP
125
Q

Are overdraft policies required?

A

NO

BUT- banks that provide ODP should adopt written policies and procedures adequate to address the credit, operational, and other risks associated with these types of programs.

126
Q

Under what circumstances are examiners not required to review a policy or procedure (4)?

A

1) The policy was reviewed at the prior FDIC consumer compliance examination
2) The review of the policy at the prior examination found no deficiencies
3) No changes or amendments have been made since the policy was last reviewed
4) There have been no significant regulatory or operational changes pertinent to the area covered by the policy since the prior examination.

127
Q

What materials should be reviewed to determine the adequacy of training (3)?

A
  1. Examiner-determined risk profile as relates to training
  2. Compliance-related training docs
  3. Examiner notes from discussions with CO, managers, etc.
128
Q

What materials (at a minimum) should be reviewed to determine the adequacy of Monitoring (4)?

A
  • The examiner-determined risk profile as it relates to monitoring
  • Compliance-related policies and other written compliance procedures
  • Documentation of the results of monitoring activities
  • Reports to management of the findings, corrective actions, and related follow-up from monitoring procedures
  • Examiner notes
129
Q

What materials (at a minimum) should be reviewed to determine the adequacy of Audit? (7)

A
  • The examiner-determined risk profile as it relates to the audit function
  • Audit policy, external audit agreement, or other written audit guidelines
  • Compliance-related audit reports, responses, and follow-up
  • Audit workpapers
  • Org chart
  • Board minutes, Compliance Committee minutes, and other committee minutes, as applicable
  • Examiner notes from discussions with audit staff, compliance officer, managers, etc.
130
Q

T or F:

Request Fair Lending self-testing reports/results.

A

FALSE

Do not request this; however, if a bank voluntarily provides it then review the findings as part of the FL review.

131
Q

T or F:

A financial institution’s audit or review of loan files, internal policies, and training material may indicate difference in the treatment of applicants that could constitute a violation of the fair lending laws.

A

TRUE

132
Q

What materials (at a minimum) should examiners review to determine the adequacy of Consumer Complaint Response? (5)

A
  • The examiner-determined risk profile as it relates to consumer complaints
  • Consumer complaint policies/procedures
  • Complaint files - from receipt to resolution (complaint archived by bank or the FDIC)
  • Board minutes, Compliance Committee minutes, and other committee minutes, as applicable
  • Examiner notes
133
Q

TRANSACTION TESTING AND SAMPLING

A

N/A

134
Q

What dictates the intensity of transaction testing?

A

severity of CMS weakness and inherent risk

135
Q

Greater weakness and higher inherent risk leads to what?

A

Review of more transactions!

136
Q

T or F:

In certain cases management’s admission that a violation occurred is sufficient to warrant a citation without transaction testing.

A

TRUE

137
Q

III. Consumer Compliance Rating System

A

N/A

138
Q

The FDIC assigns consumer compliance ratings to institutions it supervises pursuant to what?

A

Uniform Interagency Consumer Compliance Rating System (CC Rating System) approved by the FFIEC

139
Q

Primary purpose of the CC Rating system?

A

To ensure that:

  • Regulated banks are evaluated in a comprehensive and consistent manner
  • Supervisory resources are appropriately focused on areas exhibiting risk of consumer harm and on institutions that warrant elevated supervisory attention.
140
Q

T or F:

The consumer compliance rating does not reflect the effectiveness of a bank’s CMS to ensure compliance with laws and regulations and reduce the risk of consumer harm.

A

FALSE

141
Q

What are the rating adjectives for a CMS in the ROE (1-5)?

A

1 - Strong CMS
2 - Satisfactory CMS

3 - Deficient CMS
4 - Seriously deficient CMS
5 - Critically deficient

142
Q

Ratings of 1 or 2 represent what?

A

Satisfactory or better performance

143
Q

Ratings of 3, 4, or 5 indicate what?

A

Performance is less than satisfactory

144
Q

What 3 categories if the CC Rating System organized under?

A
  1. Board and Management Oversight
  2. Compliance Program
  3. Violations of Law and Consumer Harm
145
Q

The first 2 categories are used to asses what?

A

The bank’s CMS

146
Q

T or F:

Examiners should evaluate activities conducted through third-party relationships as though the activities were performed by the institution itself.

A

TRUE

147
Q

What are the Rating assessment factors for Board and Management Oversight? (4)

A
  • Oversight of and commitment to the CMS;
  • Effectiveness of the bank’s change management processes including responding timely and satisfactorily to any variety of change, internal or external, to the institution
  • Comprehension, identification, and management of risks from the products, services, or activities; and
  • self-identification and correction of such issues
148
Q

What are the Rating assessment factors for the Compliance Program? (4)

A
  • whether the policies and procedures are appropriate to the risk in the products, services, and activities;
  • the degree to which compliance training is current and tailored to risk and staff responsibilities;

• the sufficiency of the monitoring and, if applicable, audit to encompass compliance risks;
and

• the responsiveness and effectiveness of the consumer complaint resolution process

149
Q

What are the assessment factors for Violations of Law and Consumer Harm (4)?

A
  • root cause(s)
  • severity of any consumer harm
  • duration of time over which the violations occurred; and
  • pervasiveness
150
Q

T or F:

The root cause of a violation analyzes the degree to which weaknesses in the CMS gave rise to the violation.

A

TRUE; in many instances, the root cause ties to a weakness is one or more elements of a CMS

151
Q

What does the severity assessment factor do?

A

Weighs the type of consumer harm, if any, that resulted from the violation

152
Q

What does the duration assessment factor consider?

A

The length of time over which the violations occurred

153
Q

What does the pervasiveness assessment factor evaluate?

A

The extent of the violation(s) and resulting consumer harm, if any.

Violations that affect a large number of consumers will raise greater supervisory concern than violations that impact a limited number of consumers.

154
Q

What are the strongest types of compliance programs?

A

Ones that are PROACTIVE.

They promote consumer protection by preventing, self-identifying, and addressing compliance issues in a proactive manner.

155
Q

T or F:

Self-identification and prompt corrective action reflect strengths in a CMS.

A

TRUE: a robust CMS appropriate for the size, complexity, and risk profile of a bank’s business often will prevent violations or detect potential violations early on.

156
Q

T or F:

The consumer compliance rating reflects the effectiveness of a bank’s
CMS to identify and manage compliance risk in the bank’s products and services and to prevent violations of
law and consumer harm, as evidenced by the bank’s performance under each of the assessment factor

A

TRUE

157
Q

True or false: A bank may not receive a less than satisfactory rating if no violations were identified.

A
158
Q

Which presents greater supervisory concern?

  1. Serious weaknesses in the policies and procedures or audit program of the mortgage department at a
    mortgage lender
  2. Same gaps at an institution that makes very few mortgage loans and strictly as an accommodation.
A

the first one, greater weight should apply to the bank’s management of material products with significant potential consumer compliance risk.

159
Q

T or F:

An institution cannot receive a less than satisfactory rating if no violations were identified.

A

FALSE; a bank can receive a less than satisfactory rating even when no violations were identified based on deficiencies or weaknesses in the CMS.

160
Q

Who does the CFPB regulate/supervise?

A

institutions with total assets of more than $10 billion

Compliance Part 1: Exam Processes, Report Prep, and CMS_COLOMBO (6 decks)

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