Operations Risk
Much of the compliance program's attention is given to taking loan applications and opening accounts. The heaviest load of compliance rules and customer disclosures falls at this point. The goal is to provide information to the consumer before the consumer becomes obligated or before the consumer will incur costs.
While attention is concentrated on the initial phase of the product and the beginning of the customer relationship, there are compliance issues during the life of the product that must be monitored and managed. Some of these issues, such as rate adjustments to adjustable rate mortgages, are among the most costly violations.
The compliance requirements that apply during the life of a product are dispersed and therefore more difficult to manage. While product opening is an efficient focus of attention, the operational issues occur at a variety of times and in different places in the organization or the system.
Operational issues may also occur more than once during the life of the product. For example, the rate on an adjustable rate mortgage is usually adjusted annually. While there is one loan closing, there may be 29 rate adjustments.
Similar challenges arise with time deposit renewals. Timing of notices seems to be manageable, but omissions of required notice content is one of the top deposit violations found by examiners.
Operations Risk Chart
Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 11, 10/05
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