|Regulator panel confirms, compliance officers have job security for life (July 15, 2009)|
Annual introduction to regulatory breakout sessions presents overwhelming range of tasks on compliance officers’ lists.
Posted on July 15, 2009
By Steve Cocheo, executive editor
ABA’s conference has long featured a general session where top leaders in the compliance function from the key federal financial agencies talk about pending developments and issues in broad terms for an hour or so.
This is always followed by breakouts by agency, in most years barred to the press and always off the record, where compliance officers and more agency representatives can get into more detailed issues.
This year, the compliance officers got more than a earful. The industry’s shifting circumstances come at the same time that major challenges are coming to a head.
Fed view of compliance performance
Timothy Burniston, assistant director, in the Federal Reserve Board’s Division of Consumer and Community Affairs, opened with a daunting list of compliance tasks left in the wake of legislation and regulation dealing with the mortgage crisis. This list continues to grow. “Some of those dates are coming up quickly,” said Burniston.
Burniston noted that the Fed is hearing many uncertainties regarding the Community Reinvestment Act.
Some wonder if banks are doing as much for their communities, making as many outreach efforts, in the current economy.
From the Fed’s perspective, there isn’t evidence for such concern, yet. “We have not been seeing, at least in our agency, any wild swings in [CRA ratings],” Burniston said.
Questions keep coming up about CRA and its impact on fair-lending law, itself an evolving matter in the wake of the mortgage crunch. (And possibly moreso, in the jurisdiction of the proposed Consumer Financial Protection Agency’s anticipated role in fair-lending enforcement, which came to light after the conference.)
“But these issues are not necessarily new to the regulation,” said Burniston. “They have been kicked around for a long time.” (Fellow panelist Montrice Godard Yakimov, managing director, compliance and consumer protection, Office of Thrift Supervision, said that her agency has seen some downgrades in CRA ratings as a result of fair-lending issues that have arisen in its CRA exams.)
Whether what Burniston said about the status quo will remain so, remains to be seen. He said the Fed has noted the impact of belt-tightening among the banks it regulates. Compliance staff have been trimmed—sometimes cut back to a single person.
As a result, he said, “we’ve see some slippage in compliance.” Overall compliance ratings haven’t slipped dramatically, he said, but some “1”s have become “2”s and some “2”s have become “3”s.
Burniston noted that some institutions have been making up for chopped compliance staffs by hiring external audit firms to do compliance reviews for them. He said that was acceptable, but only if the firm’s employees really understand compliance.
He also explored a sensitive issue—the watchers being helped by the watched.
“In some cases,” said Burniston, the Fed has learned of “compliance officers who have been able to help the bank’s internal auditors do their compliance review—which of course raises some questions.”
UDAP focus continues to fester
The regulatory panel discussed UDAP—Unfair and Deceptive Practices—issues at some length, some of it as a follow-up to a speech the day before by Comptroller John Dugan on banks’ entry into the reverse mortgage business. (To see comments that OCC’s representative on the panel made during this session regarding reverse mortgages, see the separate coverage of Dugan’s speech here.)
Luke Brown, associate director, compliance policy, at FDIC, and chairman of the Federal Financial Institutions Examination Committee’s consumer compliance task force, noted that UDAP is a difficult matter to generalize about. While much of compliance is traditionally very driven by regulations, UDAP concerns behavior, and the regulators’ UDAP cases tend, therefore, to be very “fact driven,” to use Brown’s words.
But a general developing problem area, according to Brown, is third-party relationships, situations where bank services are delivered in some fashion in the bank’s name but by outside suppliers or contractors. (This can be the result of strategy, or part of a cost-cutting move to outsource.)
Brown said that bankers from all types of institutions could benefit from a reading of FDIC’s 2009 guidance on third party transactions.
“It very effectively highlights the concerns you need to be thinking about,” said Brown. [To read the document, Financial Institution Letter 44-2008, “Third-Party Risk: Guidance for Managing Third-Party Risk,” click here.
How does your bank handle complaints?
The discussion about UDAP issues segued into a discussion of customer complaints and how well-or otherwise—banks handle them.
The Comptroller’s Office maintains a customer complaint unit in Houston that receives more than 100,000 complaints a year, said Ann Jaedicke, deputy comptroller for compliance policy.
Jaedicke said she had a feeling that many banks don’t involved their compliance officers in the complaint process, which prevents them from spotting ongoing problems that could be remedied. She said that any compliance officer who is not involved in their institution’s complaint handling should find a way to insinuate themselves into it.
The regulator said that community banks would tend not to have centralized complaint processes, which she clearly considered to be a weakness because it made it difficult to have an overall sense of what was causing trouble.
“Find a way to find this out,” Jaedicke urged. “If you are trying to find a way to avoid activities that can lead to UDAP, that’s the source.”
The Fed’s Burniston underscored this in later remarks. He said that the Fed’s handful of UDAP actions involved both third-party actions and consumer complaints.
At another point, FDIC’s Brown remarked that “safety and soundness and consumer protection are two sides of the same coin.”
(This remark proved additionally interesting, as successive events unfolded. It parallels ABA language in testimony on the proposed Consumer Financial Protection Agency. For recent coverage of this, with links to ABA testimony, click here.)
Compliance and corporate governance
OCC’s Ann Jaedicke left compliance officers with a strong suggestion to prepare for the coincidence of compliance and corporate governance over the next 18 months. She believes these issues are converging.
To prepare, she suggested that banks set up an official compliance committee, internally. She also suggested that management persuade a member of the bank’s board to “sponsor” compliance issues at the board level.
“Whatever you can do to kick up your compliance program a notch will help,” Jaedicke advised.
[This article was posted on July 15, 2009 on the website of ABA Banking Journal, www.ababj.com, and is copyright 2009 by the American Bankers Association.]
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