Pub. 11 2016-2017 Issue 3

September/October 2016 11 Extraordinary Service for Extraordinary Members. B ANK E R S OP E R A T E I N A H I GH LY R E GU L A T E D environment, and regulatory examinations are a necessary ingredient for maintaining a safe and sound financial system. As we all know, though, examinations can often go awry for myriad reasons, and re- cent observations suggest that we are at risk of veering away from the collaborative approach tomuchmore of a regulatory “gotcha” mentality. As you may be aware, the Regulatory Feedback Initiative (RFI) consists of an anonymous electronic survey for bank- ers to provide an assessment of their most recent examination or visitation. The information is aggregated and analyzed on a national level to improve the regulatory examination process for banks through two fronts: 1. Survey results are communicated to bank regulators on a routine basis when unique examination trends are discovered, and 2. Custombank reports are available to aid banks in pre- paring for an upcoming exam by identifying trending areas of focus or criticism. Created by The Coalition of Bankers Associations in 2011, banks have provided feedback on more than 3,000 examinations. In 2015, FinPro joined this important effort to assist with analyzing the data generated by RFI and pro- vide suggestions for improving the survey. The Coalition’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 that rolled out in May 2016 has cut the number of questions by almost 50 percent, which is projected to reduce the average survey completion time from27minutes to less than 15 minutes. While this new platform is very exciting, its usefulness is determined by banker involvement. The survey results truly make a difference, and we wanted to share with you some examples of how the RFI survey provides actionable feedback. Below are three items that, based on the responses gener- ated by banks in the survey, the regulatory agencies should Start, Stop, and Continue: Start: Create an appeals process that eliminates any concerns of regulatory retaliation. The Riegle Community Development and Regulatory Improvement Act of 1994 required that all regulatory agencies construct an ap- peals process that attempts to remedy contested filings. RFI data shows a high correlation where banks reported being “unsatisfied” or “extremely unsatisfied” with their examina- tion to whether or not the “examination resolved issues and recommended corrective action in a fair and reasonable man- ner.” Bankers’ comments yearn for a healthy appeals process that is standardized across agencies and void of regulatory retaliation. Froman article published in the American Banker on April 8, 2015, titled Fear of Retaliation Stifles Banks’ Appeals to Regulators, FinPro’s suggestions for improve- ment are simple and easy to implement. First, examination standards and findings should be the same regardless of an FDIC, OCC, or FRB examination team. Second, appeals should be reviewed and resolved by an interagency group of senior executives. Third, 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 agreed that “examiners applied ‘guidance,’ as opposed to enforceable regulation, appropriately” during their examina- tion. The most common divergences in expectations histori- cally 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 above state- ment reported their examiner-in-charge had been supervis- ing bank examinations for less than five years. Augmenting the experience of examiners is only one part of the solution though. Some FILs, such as 44-2008, contain language stating Assess Your Examination Process Tell Us the Good, Bad & Ugly! Scott Polakoff, Executive Vice President & Stephen Brown Klinger, Director, FinPro Inc.  Examination Process — continued on page 27