The banking and financial services industries must comply with several laws and regulations. Due to the increased likelihood of fraud, identity theft, cyber crime, and other ethical and legal risks that exist today, regulatory scrutiny is more important than ever before. If you fail to understand and comply with required regulations, you could face fines, legal action, and even potentially lose critical licenses.
For these reasons, regulatory exam preparation is crucial. By taking appropriate steps to understand and comply with the specific rules and regulations of your industry, and by understanding the regulatory examination process, you can avoid having to take corrective action.
It’s understandable to have concerns or feel apprehensive about an upcoming regulatory exam, but being prepared will help you, as will establishing a culture of regulatory compliance in your organization. The following is what you need to know to accomplish those goals.
What is a Regulatory Exam Preparation?
Preparing for a regulatory examination protects you from being noncompliant and facing enforcement actions. To get ready, you need to understand the examination process. This will give you the outline of what to expect so you know what will be asked of you and how you should respond.
You may receive notice of the upcoming examination. If this happens, you’ll be able to get all documentation in order and otherwise ensure you’re ready for the exam. There are a few things you’ll want to make sure you have done, including:
- Review the rules, regulations, and laws that govern your industry. Specifically check for any recent regulatory changes.
- Check your manual, client agreements, and filings. Make sure that you’re doing what you say you’re doing. Verify that you are in compliance. Identify any areas where you are not in alignment with current regulations.
- Look at the findings from your last audit or annual review. Have you resolved any outstanding issues or concerns?
- In general, a compliance exam may cover your organization’s financial practices, data security, operational procedures, or product safety. See if you can find out what this audit will be covering. It may be explained to you in the audit notice.
- If the exam is focused on a particular area (as opposed to a more general overview exam), think about what the examiner may ask and want to see.
- Inform the legal department, all members of the compliance department, and senior management of the upcoming exam.
In some instances, the exam may happen without any notice. This is usually the case if there are compliance concerns or there has been a complaint.
Whether you’re told about the exam or not, you’ll want to cooperate with the examiners and provide them with the information and documents they need. Make sure that all relevant members of your team are informed of the exam and given the resources they need to complete it. This includes compliance officers, senior management, and anyone else who may be a part of the process.
When it’s time for the actual exam, you will usually begin with a meeting between representatives from the regulatory authority and those in your firm responsible for compliance. The examination scope will be outlined at this point, along with the expectations and requests.
Examiners usually review policies, procedures, financial records, and other relevant documentation. They may wish to conduct an on-site inspection and interview key personnel. Your company’s compliance officer should attend all interviews.
Regulatory examiners may also ask to review a representative sample of your firm’s transactions and data to check for accuracy and compliance.
In most cases, the process will close with an exit interview. The best case scenario in this situation is to have the exam conclude with no further issues. However, your firm may have some deficiencies or other regulatory findings to attend to and resolve. You will usually be told of these in a findings letter and will be given a deadline to respond and comply.
If there are recommendations or action items following the exam, you should follow this process:
- Create a plan for handling each recommendation or action item.
- Assign each action item to an owner who will be responsible for overseeing or correcting the required processes.
- Track the progress of each item.
- Send responses to the examiner to address the exam’s findings.
Once you have made the required adjustments, update your compliance program as needed and ensure that all updates are properly communicated to your team. If training is necessary, ensure that sessions are scheduled and completed. Doing so will not only meet the requirements of the regulatory exam, but it will also help your institution remain compliant and give you an easier time when it comes to the next examination.
An important point to remember is that your business can give itself a better chance of passing the exam if your team continuously makes an effort to stay informed of regulations and works to ensure that you are compliant. Conduct internal reviews of your compliance program regularly. This will help you identify and correct any potential compliance gaps before your exam.
The examination process is designed to ensure that financial services and banking institutions are operating responsibly, ethically, and according to the law. If you foster a culture of compliance in your organization, you should not have issues passing.
It’s understandable that these requirements can be overwhelming for an organization to handle in house. With constantly-changing regulations and increasing regulatory oversight, it may not make sense for your company to handle everything on your own.
This is where RADD LLC provides assistance. We can help you not only prepare for your regulatory exam, but we will work with you to unlock opportunities for growth by embracing compliance as a transformative force. Contact us today to learn how we can achieve this goal.
How to Pass Your Regulatory Exam?
Being prepared is the best way you can pass a regulatory exam. By conducting regular internal audits and risk assessments, you can ensure that your organization has an ongoing commitment to meeting regulatory standards. This gives you a better chance of passing the exam, and is likely to impress the examiner as well.
You can also use your prior internal audits and self examinations to help you prepare for future exams. Review the work that you have done and look for any issues that were found. Make sure you took the appropriate corrective action and that these processes have been documented.
When it comes to the actual examination process itself, it’s important to give appropriate time and resources to the operation. Your compliance officer or company management should take the process seriously.
You may wish to build a team that will prepare for the upcoming exam. Have this team review the examination request letter and designate who will address items from the examiners on site as required.
When the examiners arrive at your workplace, ensure that they have a space to work. You will want to provide them with a comfortable and secure room. Introduce them to the designated contacts for the team and let them know who they should be working with and addressing questions to. If staff members are requested to speak with the examiner, they should be given enough time to do so and also provided with any tools or information they need to deliver answers and solutions.
Any examiner requests should be responded to promptly and acted on as necessary. However, it’s also important to recognize that there are different types of examinations. When asked to provide records and documents, aim to only provide those relevant to the current exam.
While you certainly want to be cooperative with the examiner, there is no need to give them more than they are looking for. Not only can this potentially complicate the process, but it can also open up a larger examination that may not be necessary at this point. Of course, if the scope of the exam widens as a result of the initial audit, your company’s compliance officer should work with regulators as necessary.
RADD LLC can help your organization take a proactive compliance stance. We don’t just sit and wait for problems to happen. Instead, we work with institutions to ensure they can meet the rigorous regulatory mandates asked of them. We know that it can be difficult to keep up with changing regulations and rules. Staying on top of these changes and continuously working to ensure compliance can be overwhelming and often impractical for all but the largest financial institutions. We’re here to help.
We’ll work with you to conduct proper risk assessments, develop a compliance plan, maintain documentation and controls, and provide your organization with the expertise needed to pass a regulatory exam. We’ll further help you make compliance and security the pillars of your business, allowing you to use these strengths to propel your company to greater success. Contact RADD LLC to learn more.
How to Handle Regulatory Exam Inquiries?
Understandably, there may be some anxiety when your organization is first told of the regulatory examination. There is likely to be even more anxiety if it’s a sudden exam that comes without notice. Look at the situation as an opportunity to showcase your organisation’s positives and continue improving.
Being open and understanding will help you learn more about what they are looking for, which documents they need, and what is being asked of you. Having the right attitude makes it easier for you to communicate effectively with the examiner and presents your firm in a positive light.
Regulatory compliance is necessary for all financial services firms, but this doesn’t mean that it should be something you do only because it is required. It’s true that a large regulatory burden is placed on most businesses in the financial industry and that these requirements are likely to increase. However, these regulations are in place for a reason.
With more financial firms offering digital services, for instance, there is a greater chance of cybercrime or identity theft. Your company needs to be prepared. Maintaining compliance protects you from fines and damages and can also enhance the reputation of your firm.
Regulatory exam preparation does more than help you pass an examination or audit. It keeps your business from suffering potential breaches and other significant issues. These problems can cause serious damage to your brand.
In today’s competitive marketplace, customers have more choices than ever. They are also more educated than ever. Companies that suffer data breaches or other issues have serious difficulty recovering from them. This is especially true in the financial services industry. By having a culture of compliance and a strong dedication to following regulatory standards, you can set your firm apart from others. You will also save yourself from significant fines and penalties.
For more information on how RADD LLC can help your organization prepare for a regulatory examination and create a culture of compliance that will allow your institution to stand out from the competition, please contact us today.