14 Hoosier Banker July 2016 Continued on page 16. FEATURE Assess Your Examination Process: Tell Us the Good, the Bad and the Ugly! Bankers operate in a highly regulated environment, and regulatory examinations are a necessary ingredient for maintaining a safe and sound financial system. However, examinations can often go awry for myriad reasons, and recent observations suggest that we are at risk of veering away from the collaborative approach to more of a regulatory “gotcha” mentality. The Regulatory Feedback Initiative (RFI) consists of an anonymous electronic survey for bankers to provide assessments of their most recent examinations or visitations. The information is aggregated and analyzed on a national level to improve the regulatory examination process for banks on two fronts: • Survey results are communicated to bank regulators on a routine basis when unique examination trends are discovered, and; • Custom bank reports are available to banks to aid them in preparing for upcoming exams by identifying trending areas of focus or criticism. RFI was created by The Coalition of Bankers Associations in 2011; to date, banks have provided feedback on more than 3,000 examinations. In 2015 FinPro Inc. joined this important effort to assist with analyzing the data generated by RFI and to provide suggestions for improving the survey. RFI’s leadership, working closely with FinPro’s advanced analytic group and staff of former senior regulators, has streamlined the survey process and improved the relevance of questions. The enhanced survey, rolled out in May, has cut the number of questions by almost 50 percent, which is projected to reduce the average survey completion time from 27 minutes to less than 15 minutes. While this new platform is exciting, its usefulness is determined by banker involvement. Survey results can actually provide actionable feedback. For example, based on survey responses, the regulatory agencies should Start, Stop and Continue as shown in the following paragraphs. Start ‒ Create an appeals process that eliminates concerns of regulatory retaliation. The Riegle Community Development and Regulatory Improvement Act of 1994 required that all regulatory agencies construct an appeals process that attempts to remedy contested filings. RFI data shows a high correlation between banks which reported being “unsatisfied” or “extremely unsatisfied” with their examinations to whether or not the “examination resolved issues and recommended corrective action in a fair and reasonable manner.” Bankers’ comments show that they yearn for a healthy appeals process that is standardized across agencies and void of regulatory retaliation. From an article published in the American Banker on April 8, 2015, titled “Fear of Retaliation Stifles Banks’ Appeals to Regulators,” FinPro’s suggestions for improvement are simple and easy to implement: 1. Examination standards and findings should be the same, regardless of whether the examination team is from the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency or the Federal Reserve. 2. Appeals should be reviewed and resolved by an interagency group of senior executives. 3. Appeals should have all names and identifiable information redacted before submission to the interagency group. Decisions should be made based on the facts of the case. Stop ‒ Only 25 percent of the banks responding to the RFI survey agreed that “examiners applied ‘guidance,’ as opposed to enforceable regulation, appropriately” during examinations. The most common divergences in expectations historically surrounded the application of Appraisal and Evaluation Guidelines (FIL-82-2010), but most recently disagreements regarding the Guidance for Managing Third-Party Risk (FIL-44-2008) have emerged as a trend. Not surprisingly, 51 percent of the bankers who disagreed with the About the Author This article was written by Scott Polakoff, executive vice president, and Stephen Brown Klinger, vice president, of FinPro Inc. For more information on RFI reports or FinPro’s strategic planning, capital planning, regulatory advisory, new director orientation, and board retreat facilitation services, contact them at 908-234-9398 or by emailing finpro@finpro.us.
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