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Regulations

Examinations Change from 12 to 18-Month Cycle for Under $3 Billion Institutions

Nov 14, 2018 by Branan Cooper

In the second and third quarters of 2018, several of the major financial services regulators issued an interim final rule extending the examination cycle for well-managed institutions from 12 months to 18 months. This means, vendor management exams fall in with this new rule as well. Other regulators are considering similar moves for their managed institutions.

Is This Good or Bad News?

This is certainly welcome news to weary compliance officers at the smaller institutions, as the threshold for qualifying under this new rule moves from institutions under $1 billion to institutions under $3 billion. At the same time, the major regulators have reduced their own workforces, so some of the changes may not only be a nod toward regulatory reform but a practical workforce reduction result as well.

While this is great news, it does not cover all financial institutions – just those “well-managed” ones under $3 billion.

5 Takeaways to Prevent This Change from Negatively Affecting Your Vendor Management Program

Before compliance officers break out the bubbly and go party in the streets, let’s remember a few key points:

  • This still means you’ll need to work on annual schedules for other items, most likely for your internal audits, periodic updates to the board and other routine matters – don’t forget that.
  • It may add a little bit of confusion, as it’s out of sync with what those institutions are accustomed to, so organization is important.
  • This adds a real danger of letting policies or work products grow stale. That happened enough in the course of a year, so extending that by 50% leaves even more room for aged policies and products. Don’t let that happen – stay on top of it.
  • Don’t let your board or senior management team be lulled into a false sense of complacency – a good compliance program stays relatively exam-ready at all times.
  • Keep in mind there will certainly still be occasional inquiries on routine matters from your regulator.
  • You’ll need to keep an eye on your institution’s size and overall health to be sure it’s still under the magical $3 billion mark and is considered well-managed (generally based on your last exam and lack of any regulatory actions against the institution).

So – happy for many who have now got a bit of a break in their schedules and hopefully lots more relief on the way as elements of regulatory reform kick in.

Additional Resources

Need more information? Contact your prudential regulator or counsel or refer, for general information, to the handy links below:

  • Read a couple of the regulators’ official pronouncements here and here.
  • Read additional legal analysis here and here.

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Branan Cooper

Written by Branan Cooper

Branan Cooper is the Chief Risk Officer at Venminder. Branan has nearly 30 years of experience in the financial services industry with a focus on the management of operational and regulatory processes and controls—most notably in the area of third party risk and operational compliance. Branan leads the Venminder delivery team as the third party risk management subject matter expert in residence.

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