The Federal Financial Institutions Examination Council today provided a second update on its Examination Modernization Project.
The project identifies and assesses ways to improve the effectiveness, efficiency, and quality of community financial institutions safety and soundness examination processes, particularly through increased use of technology. The project is a follow-up to the review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act. FFIEC members with safety and soundness examination responsibilities expect these efforts to help reduce unnecessary regulatory burden on community financial institutions.
On March 22, 2018, the FFIEC issued a press release (opens new window) providing a first update on the Examination Modernization Project. That update noted the steps taken to improve the examination process, which included the identification of areas with the potential for the most meaningful supervisory burden reduction. This second update is focused on tailoring examination plans and procedures based on risk, which is another area that holds promise for reducing burden.
A risk-focused supervision process is where more resources are used to address institutions or areas that present heightened risk versus those that do not. As an initial step in enhancing their respective risk-focused approaches to supervision, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the State Liaison Committee reviewed and compared principles and processes for risk focusing examinations of community financial institutions. This review concluded that the state and federal regulators have developed and implemented similar programs and processes for risk tailoring examinations. Common risk tailoring principles and practices include:
The FRB, FDIC, NCUA, OCC, and SLC each committed to issue reinforcing and clarifying examiner guidance to their examination staffs on these risk-focused examination principles if necessary. Examiner guidance has or will cover the following community financial institution examination risk-focusing practices:
Examiners will generally discuss the examination plan and its rationale with institution management at the beginning of the examination.
The FFIEC members may take further actions on the other areas of the examination process as the Examination Modernization Project progresses.
The FFIEC was established in March 1979 to prescribe uniform principles, standards, and report forms and to promote uniformity in the supervision of financial institutions. It also conducts schools for examiners employed by the five federal member agencies represented on the FFIEC and makes those schools available to employees of state agencies that supervise financial institutions. The Council consists of the following six voting members: a member of the FRB; the Chairman of the FDIC; the Director of the Bureau of Consumer Financial Protection (BCFP); the Comptroller of the Currency; the Chairman of the NCUA; and the Chairman of the SLC.
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