Who should drive exam innovation … the regulator or the regulated?

Back in my days as a CFO at a financial institution, we had a few tricks for making the regulators feel welcome when it came time for the annual exam. If it was summer, my favorite was housing them in the sunniest room in the building, where they could enjoy natural lighting. We’d set the temperature at a toasty 90^o … you know, to save on the A/C. And when the weather turned cold, we liked to give examiners a feel for what it’s like to participate in winter sports.

Of course I was kidding. The examiners have an important job to do – a necessary ev– … uh … inconvenience.

Bad disruptive banking

But doesn’t it seem like they always show up when you’re in the middle of a core conversion, or the system’s down or, at the very least, it’s month end? Having examiners under foot is disruptive, with staff members constantly stopping work to find a file or answer questions that can’t seem to wait. And, let’s face it, it’s just a little unnerving to have regulators in the middle of your daily operations for a week or more.

It isn’t easy for them, either. Working in the field requires extensive travel, as much as 300 days a year of constantly packing up papers and computers to move from one financial institutions to another. That’s hard on the body, and hard on home life. And then there are the costs – costs that are borne by each financial institution. Hotel rooms, meals out, travel costs … it isn’t unusual for an examiner to wear out a new car in just a year!

Given their druthers, I suspect most regulators would much prefer to work in the familiar setting of a home office, with all their supplies, equipment and files in one place, not to mention creature comforts. That’s especially true of millennial employees, who don’t want to spend all their time traveling.

Well, what can you do? Regulators have to be onsite for days at a time so they can conduct a proper examination, right? Maybe not.

Good disruptive banking

Examiners don’t like spending the bulk of their lives on the road or in your shop, and your credit union isn’t thrilled when exams get in the way of normal work routines, so maybe we should start thinking differently. What if your examiners could do all their prep work, analysis, interviews and report writing from their own offices? What if they only had to visit your credit union to conduct the exit interview? What if even that could be done by Skype?

Exam innovation is possible, and at Virtual StrongBox, we’re working with regulators and financial institutions to make it happen. Already, participating regulators across several states are testing our digital “safe deposit boxes” to do secure file exchange between examiners and the financial institutions they supervise. Here’s how it works:

• The regulatory agency licenses our secure member engagement platform, providing financial institutions and their employees with individual, Virtual StrongBoxes to use for secure file exchange via our patented, end-to-end encryption process. And unlike less-secure, common document-storage services that commingle users’ files, documents in online box are digitally stored separately in regulatory-compliant, SSAE 16 certified data centers.

• Each financial institution is given instructions for placing needed electronic documents into prebuilt folders within that financial institutions’s StrongBox (e.g., ALM/Liquidity, Information Security and Technology, Lending, Savings and Administration). The financial institution then grants access to the examiner, who can drag files into his/her own system, eliminating the need for paper copies of private bank information.

• When an examiner is ready to send findings, reports or other documents to the financial institutions, s/he can drag them into the StrongBox for pick up.

• The virtual system also improves security because examiners don’t need to copy files to a thumb drive or other device, which can get lost or stolen. (It can happen; just a year ago, an NCUA examiner’s thumb drive with reams of sensitive credit union data went missing.) Similarly, there’s no need to send documents by email or fax, which are inadequately secured.

For banks, the benefits include:

• Examiners can retrieve files right at their fingertips from their home office without interrupting daily operations.
• APIs allow for the automation of document delivery from core to examiner
• Examiners need to be onsite fewer days, often just a one-day (or virtual) exit meeting.
• Less travel results in huge cost reductions and a lower financial burden for banks.
• Banks sensitive data is protected by an ultra-secure, file-exchange process.

For regulators, the upside is:

• Examiners travel less, resulting in higher job satisfaction and employee retention.
• Agencies can hire from a larger pool of qualified employees (millennials, who hate careers that cause them to always be on the road, are now the largest portion of the workforce).
• Needed documents can be retrieved anywhere there is an Internet connection.
• Examiners’ time is used more efficiently.
• Credit union security is enhanced – a high regulatory priority.

Whose (job) life is it, anyway?

Every week, we hear some new threat about disruptive banking from fintech companies. Perhaps it’s time for our industry to do some “disrupting” of its own to bring about exam innovation. Whether industry participants use the Virtual StrongBox program or another solution, let’s start a conversation about saving the time, costs and aggravation of current exam processes. Otherwise, well, Henry Ford said it best: “If you always do what you’ve always done, you’ll always get what you’ve always got.”

So, who should be doing the innovating? The regulator? The regulated? Both? Let’s just say that whoever has a good idea should be heard. But credit unions and regulators must have a seat at the table; who better to work on a solution than those who have a stake in the outcome?