Regulatory examinations are a fact of life within the financial services industry and 2020 and Q1 2021 showed no signs of relief as the Office of the Comptroller of the Currency and the Federal Reserve maintained examination and enforcement action pace with prior years. Preparing for an upcoming regulatory examination is daunting in the best of times and with remote workforces and companies looking to do more with less, financial institutions are seeking additional support with the planning and management of these examinations to provide relief for their employees. This is understandable as the upfront effort that institutions put into organizing and preparing in advance pays dividends through a smoother, and ideally cleaner, examination process. DHG recommends breaking down the examination cycle into three distinct phased sprints to set yourself up for success.
| ||1 ||2 ||3 |
|Prior to receipt of the examination letter, upcoming exams are communicated well in advance and provide an opportunity for financial institutions to plan, prepare and take action to put themselves in the best position to respond. ||Upon receipt of the examination letter, regulator focus, expectations and requirements are known, and financial institutions can begin the process to mobilize impacted stakeholder groups and aggregate documentation and supporting information. Effective planning is key to establish core routines, meeting cadence and define roles and responsibilities. ||During an on-site examination there are many moving pieces to track and coordinate including meeting management, communication protocols, stakeholder involvement, document / data requests as well as internal planning routines. Having support partners to assist with the management of these items is critical to the examination process. |
- Subject matter leadership
- Regulatory trend / testing theme analysis
- Review prior examination materials / progress (closeout exams)
- Develop stakeholder communication protocols
- Inventory & review documentation
- Pre-exam internal testing
- Review and assess examination letter
- Socialize and organize impacted stakeholder group
- Establish internal examination structure(s)
- Document repository & access management protocols
- Internal meeting routines
- On-Site examination meeting governance
- Subject matter leadership
- Meeting management (Entrance / Targeted / Exit)
- Documentation of notes and take-aways
- Support for regulator requests:
- Sample data
- Process flows
- Issue management support
- “Post-Mortem” / After Action Review
- Remediation preparation (if necessary)
Phase 1 - Prepare
Upcoming examinations are communicated well in advance of receiving the examination letter. This communication provides the financial institution the opportunity to complete pre-examination activities such as creating an execution plan, gathering internal documentation and reviewing data elements. Such activities ensure that the organization is in the best position to respond to a regulatory examination.
As the examination process is strenuous and labor-intensive, it is important to define and document your organization’s examination approach in advance. The preparation activities are the internal driver of the examination process and will give all stakeholders an understanding of what will likely be required throughout the examination. Early establishment of a Project Management Office (PMO) and regulatory exam working groups should be considered at this phase. Members of the working groups should come from all impacted business units and control functions.
Phase 2 - Organize
Regulator focus areas, requirements and expectations are identified in the examination letter. At this point, the financial institution can begin the process to mobilize impacted stakeholder groups and aggregate the requested documentation and supporting information. Continued effective planning, initiated through the establishment of a PMO in Phase 1, is key to maintaining core routines, meeting cadence and define roles and responsibilities.
During this time, the organization should review and assess the examination letter to ensure the requests and requirements are clear and fully understood. Impacted stakeholders should be mobilized with documented communication protocols and execution plans formalized with deadlines and responsibilities assigned to specific individuals. Supporting documents and evidence should be gathered, reviewed for completeness and accuracy to meet the regulator’s request and then staged for regulator submission.
Phase 3 - Manage
During an on-site examination, there are many moving pieces to track and coordinate. Project management principles continue to be vital during this phase as regulators begin their review. As a leading practice, a team member should be assigned to interface with the on-site regulatory team to assist with meeting management, communication protocols, stakeholder involvement, additional document and data requests as well as internal planning routines. Having support partners from all lines of defense sitting on the working groups to assist with the management of these items is critical to a smooth examination process.
After a regulatory examination’s fieldwork is complete, the Examiner in Charge of the exam team will have an exit meeting with senior management on the initial results of the exam and then subsequently issue a document of their findings and issues. If any deficiencies are identified, a corrective action plan should be formulated promptly to ensure issues are addressed by the organization. Once issues are remediated, self-assessments should be executed regularly to ensure compliance and sustainability in readiness for future Internal Audit testing and regulatory examinations.
From large-scale corporate fraud to operational mismanagement, the industry has seen an expansion of regulatory oversight activities and regulators have intensified their examination process. With the increased scrutiny and a capacity-stretched workforce, financial service institutions are increasingly teaming with third-party providers to support navigating the complex examination lifecycle. Having fully dedicated resources executing a phased strategy to prepare for and manage an examination is essential given the increased demands required for all stakeholders.
How DHG Can Help
DHG’s Regulatory Advisory practice can help your organization prepare for, organize and manage the toughest of regulatory examinations. Our subject matter leaders include seasoned industry professionals, former regulators and experienced project managers that can help your organization navigate the complex examination process.
If your organization is interested in talking more about our Examination Preparation and Management service offering, please contact us at firstname.lastname@example.org.