FFIEC provides update of Examination Modernization Project
ARLINGTON, VA (March 22, 2018) — The members of the Federal Financial Institutions Examination Council (FFIEC) today 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.
The FFIEC members have, in the past, taken a number of steps to enhance the efficiency of the safety and soundness examination process, including:
- Moving from a one-size-fits-all examination process to a risk-based approach that tailors examinations to the size, complexity, risk profile, and business model of each institution; and
- Leveraging technology to improve offsite surveillance systems and improve the efficiency of onsite and offsite reviews.
To further 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. To gain additional perspectives, the FFIEC members sought feedback from selected supervised institutions and examiners. Based on these feedback sessions, the FFIEC members plan to focus initial efforts on the following four areas that have the potential for the most meaningful supervisory burden reduction:
- Highlight and reinforce regulator communication objectives before, during, and after examinations;
- Leverage technology and shift, as appropriate, examination work from onsite to offsite;
- Continue to tailor examinations based on risk; and
- 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, and to address the first theme, 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 (NCUA) 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.
About FFIEC
The Federal Financial Institutions Examination Council (FFIEC) was established on March 10, 1979, pursuant to title X of the Financial Institutions Regulatory and Interest Rate Control Act of 1978 (FIRA), Public Law 95-630. In 1989, title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) established The Appraisal Subcommittee (ASC) within the Examination Council.
The Council is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB) and to make recommendations to promote uniformity in the supervision of financial institutions. To encourage the application of uniform examination principles and standards by the state and federal supervisory authorities, the Council established, in accordance with the requirement of the statute, the State Liaison Committee composed of five representatives of state supervisory agencies. In accordance with the Financial Services Regulatory Relief Act of 2006, a representative state regulator was added as a voting member of the Council in October 2006.
The Council is responsible for developing uniform reporting systems for federally supervised financial institutions, their holding companies, and the nonfinancial institution subsidiaries of those institutions and holding companies. It conducts schools for examiners employed by the five federal member agencies represented on the Council and makes those schools available to employees of state agencies that supervise financial institutions.
The Council was given additional statutory responsibilities by section 340 of the Housing and Community Development Act of 1980 to facilitate public access to data that depository institutions must disclose under the Home Mortgage Disclosure Act of 1975 (HMDA) and the aggregation of annual HMDA data, by census tract, for each metropolitan statistical area (MSA).
