Risk Management Anyone?

Risk management is the watchword of the day. It is the theme song of each of the regulatory agencies as they describe their new examination procedures. And it is what they expectCharlotte Bahin, SVP for regulatory affairs with America's Community Bankers, led and moderated the regulatory update panel and PCI's annual CRA and Fair Lending Colloquium (co-sponsored by FHLMC, FNMA, ABA and ACB) advised the audience that risk management is the theme in Washington, D.C.

Risk management is clearly placed in the customer identification program. Bahin pointed out that the fair lending examinations are risk based and that new examination procedures take a risk-based approach. Moreover, Bahin observed, the risk-based approach is international in scope. She referred the audience to the Basel releases and predicted that the risk focused approach of Basel will directly affect compliance by moving it to an enterprise-wide approach.

Theresa Stark, Senior Project Manager with OTS supported Bahin's advice. Stark explained that in the process of merging the safety and soundness examination with the compliance examination, the agencies are using a risk-focused approach. The philosophy behind this is that compliance is part of your business.

Making compliance part of the business of banking, or accepting compliance as part of the business of banking, is a key element of success, both in compliance and in competing for customers. Compliance requirements often provide the tools for providing information and service to customers that differentiate financial institutions from the non-regulated or the much-less-regulated.

Because the compliance exam will be combined with the safety and soundness exam, you can expect to be examined for compliance on the safety and soundness schedule - i.e. more often.

There are two essential elements to risk-based management that will be looked for in the risk-based examination. These are adequate recognition of the institution's risk and a commitment of resources appropriate to the management and control of that risk. To this end, regulatory agencies look not only at policies and procedures. They will look for the commitment of resources - time, skilled personnel, and tools - that are necessary to carry out the corporate policies and plans. Any self-assessment should therefore include a blunt and honest evaluation of what the institution has put in place to get the job done.

Copyright © 2003 Compliance Action. Originally appeared in Compliance Action, Vol. 8, No. 13, 12/03