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A Friendly Reminder about Responding to Direct Regulatory Guidance

3 min read
Jul 1, 2015

It is absolutely critical that financial institutions proactively manage any and all direct regulatory guidance. This was highlighted by a recent announcement from the Office of the Comptroller of the Currency (OCC). They terminated consent orders against three banks because they've adequately complied with earlier consent orders. However, other banks that the regulators claim didn't meet the requirements received amended consent orders restricting business activities. Here's what you need to know.

A recent press release from the OCC provides an important reminder for all financial institutions: after receiving direct regulatory guidance, financial institutions need to review each element and manage an appropriate response.

Although the organizations noted in the OCC announcement are larger and more complex than most lenders, the reminder holds true for all organizations. When given direct guidance, each issue needs to be addressed with management and appropriate action must be taken. Without such a response, the institution is subject to criticism and the discovery for repreat findings.

Before we share the four steps that all institutions need to take, here are a few details about the OCC announcement.

About the OCC Announcement

The OCC announced on June 17, 2015 that it terminated consent orders against Bank of America, Citibank, and PNC Bank because these institutions have complied with the orders issued in April 2011 and amendments issued in February 2013.

However, the regulators also determined that several banks (six of the nine noted in the announcement) did not meet all the requirements of the 2011 and 2013 consent orders. As a result, the amended orders issued to these banks restrict certain business activities that they conduct. To summarize, they were penalized for repeat findings. 

According to the New York Times, “The banks had agreed in 2011 to make dozens of changes to the way they issue and service mortgages after being accused of wrongly foreclosing on homeowners after the financial crisis. Homeowners had faced problems including bungled loan modifications, deficient paperwork, excessive fees and wrongful evictions that stemmed from the sprawling mortgage issues. As a result of their failure to comply with the 2011 agreement, the banks will now have new restrictions on their mortgage divisions." 

The restrictions include limitations on the following:

  • Acquisition of residential mortgage servicing or residential mortgage servicing rights (does not apply to servicing associated with new originations or refinancings by the banks or contracts for new originations by the banks);
  • New contracts for the bank to perform residential mortgage servicing for other parties;
  • Outsourcing or sub-servicing of new residential mortgage servicing activities to other parties;
  • Off-shoring new residential mortgage servicing activities; and
  • New appointments of senior officers responsible for residential mortgage servicing or residential mortgage servicing risk management and compliance.

The OCC said, “These restrictions vary based on the particular circumstance of each bank. In all cases, OCC examiners will continue to oversee these institutions’ corrective actions and mortgage servicing activities as part of the agency’s ongoing supervision.”

How to Respond to Direct Regulatory Guidance

In our experience, we've seen that financial institutions don't always respond adequately after receiving direct regulatory guidance. There are four steps that every institution needs to take:

  1. Make a comprehensive list of each element highlighted by the regulator (or auditor, consultant, etc.) Be careful not to forget anything! Repeat findings can be costly in time, resources and reputation.

  2. Confirm with management the response expected for each element of guidance provided. Not only will the regulators expect to see management's involvement, management sign-off often helps get traction with the rest of the institution as the team works to respond.

  3. Assign ownership of each action item to someone at the institution who will be responsible for managing the response. The burden of responding to guidance should not fall only on compliance. Compliance is a team sport, and nowhere is collaboration more important than when implementing company-wide adjustments.

  4. Track activities and progress dilligently. Whether you use a spreadsheet, a word processing document, or another project management tool, it is imperative to track and report on progress. This both contributes to the health of your institution and helps to prevent repeat findings. Make sure that management is aware of progress.

Ncontracts Viewpoint: This announcement from the OCC provides a simple reminder to all financial institutions when it comes to direct regulator guidance: you have to be vigilant. When the regulators provide exam results, board resolutions, or any other direct guidance, you need to actively address the concerns with the collaboration of management. Active project management post-discovery is an essential component to your continued success. As we've mentioned, repeat findings can be costly.

In our consulting, we encourage our partners to demonstrate that they are actively following up on each and every element of the regulator guidance. The same holds true with audits and other types of reviews, like risk assessments. Financial institutions should employ a master control document, assign ownership, require periodic updates, and host regular management conversations in regards to the project completion.This is the only way you can be sure that each item is specifically being addressed and successfully concluded. 

While the issues involved in these specific consent orders are more complex than most, all institutions needs to follow-up to regulatory giudance with management participation.

Related: What Is A Compliance Management System And Why Your FI Needs One


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