FFIEC emphasizes Risk-Focused Supervision in update of Exam Modernization Project

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The Federal Financial Institutions Examination Council provided a second update on its Examination Modernization Project.

The project is intended to identify and assess ways to improve the effectiveness, efficiency and quality of community financial institutions safety and soundness examination processes, particularly through the increased use of technology. The project is a follow-up to the review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act. The press release released by the FFIEC stated that it expects these efforts to help reduce unnecessary regulatory burden on community financial institutions.

On March 22, 2018, the FFIEC issued a press release providing a first update on the Examination Modernization Project. That update recognized the steps taken to improve the examination process, which included the identification of areas with the potential for the most meaningful supervisory burden reduction. The second update is focused on tailoring examination plans and procedures based on risk, which is another area that holds promise for reducing burden, the FFIEC stated.

According to the agency, examiner guidance has or will cover the following practices:

  • consider the unique risk profile, complexity and business model of the institution when developing an examination plan;
  • analyze existing information such as Call Report data, publicly available information and confidential supervisory information to help identify areas of higher and lower risk when planning examinations;
  • monitor financial institutions between examinations;
  • tailor the document request list based on the financial institution’s business model, complexity, risk profile and planned scope of review;
  • apply examination procedures in a way that reduces the level of review of low-risk institutions or low-risk areas; and
  • discuss financial conditions, risk profiles, new or expanded business lines and pertinent new supervisory or regulatory information with institution management prior to finalizing the scope of review.

“The New York Credit Union Association is supportive of any effort by examiners who look for ways to improve and streamline the examination process,” said Henry Meier, Association general counsel. “We will have to wait and see how much credit unions ultimately benefit from this review.”

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