“When it comes to consumer protection, Compliance Regulators don't mess around.” Federal Deposit Insurance Corporation (FDIC) sent this message in an enforcement action against a Wisconsin community bank that demonstrated weaknesses in its consumer protection and compliance program.
The EA clarifies that the bank has to improve the following areas of its Compliance Management System (CMS), though it doesn't go into the details of what went wrong;
- Commitment & Board Oversight.
- The commitment of adequate resources.
- Oversight of third parties and Due Diligence.
- Response and anticipation to changes in market conditions and products, laws/regulations, and services offered.
- Careful reviews of the Product Life Cycle.
- Compliance Risks Identification.
- Identifying Risks of Management (including self-assessments).
- Correction and immediate response of deficiencies in Compliance Risk Management.
- Training for all staff on ongoing compliances.
- Reviews and compliance monitoring.
This is added with:
- Cross-departmental lines, correct deficiencies, and report directly to the board are authorized to a Compliance Coordinator.
- The Compliance Committee reports to the board and has at least one senior manager and one independent director meeting monthly.
- The Compliance Coordinator and Committee should be provided with ongoing training and sufficient time and resources.
Minimizing Consumer Harm: Consumer Financial Protection Bureau (CFPB) Bulletin
The bulletin notes that the bureau "will favorably consider" responsible conduct when dealing with consumer protection law violations and emphasizes the importance of compliance culture.
The CFPB factors will include:
- Self-assessments: This helps prevent and detect early any violations of consumer financial law.
- Self-reporting: A commitment to compliance demonstrates prompt self-reporting.
- Quick response to violations when discovered to reduce the likelihood of future violations, including root-cause analysis.
- To cooperate with the CFPB, go above and beyond the required response.
Preventing Consumer Harm with Your CMS:
Among the top goals of financial regulators, preventing consumer harm is the one. With streamlined CMS, this goal is best accomplished.
There are three essential categories of an effective CMS, and this too is agreed by primary functional regulators:
- The change management is oversight by the board and management.
- A program on compliance.
- Consumer harm and violations of law.
The third one helps while the first two items encompass an institution's CMS.
Do you know what a Compliance Management System is, and why do you need one??
Theoretically, any service or product could pose consumer harm—including those offered by third parties on behalf of the financial institution if there isn't a robust compliance program and board and management oversight.
The longer or more severe the violation (or consumer harm), the greater the weakness in the CMS or consumer impact and the number of overall violations. Violations are assessed based on the root cause, the severity of the consumer harm, pervasiveness of the breach, and duration.
Smart Financial Institutions are recognized for following applicable laws and regulations that pose a substantial financial and reputational risk. Strong internal controls ensure that policies, procedures, and effective systems are reliable and compliant. Individuals are accountable for their actions is guaranteed by them.
COMPLIANCE iNBOX (CiB) helps businesses take care of their GRC (Governance, Risk, and Compliance) needs.
CiB helps businesses by keeping its components up to date regarding the changes in the regulatory environment that they are operating in. With secure data and savings on cost and time, proprietors can ensure peace of mind for themselves and their stakeholders.
Why not give us a call & find more about us? We are here to help you.
USA: +1 6099377291
Bangalore: +91 80 2572 4800
Pune: +91 7420061235
Visit our website www.complianceinbox.com for more details.
Banks and credit unions need careful reviews to control internally and ensure that they effectively mitigate risks throughout the institution—and they catch mistakes before regulators do.
The threat of regulatory action for falling short institutions is empty rather than nothing.