Joseph Dinolfo, a Director with Treliant, has nearly 20 years of financial services experience. His areas of expertise include regulatory compliance, risk management, audit, and banking, with an emphasis on consumer credit, mortgage origination, and mortgage servicing. His specialties include regulatory exam management, regulatory risk management, audit program development and…
America’s new consumer finance watchdog recently put the financial industry on notice that regulatory examinations will be in full force for the foreseeable future. “In the three months that I’ve led the CFPB … we rescinded policy statements made by the previous administration and made clear that we would employ the full scope of the bureau’s supervisory and enforcement authority under the Dodd-Frank Act,” said Dave Uejio, Acting Director of the Consumer Financial Protection Bureau (CFPB).1
Managing these examinations will be critical to successful outcomes. But the day-to-day handling of exams has changed in the post-pandemic world of remote work and virtual meetings. Here we explore best practices and pitfalls in this new context for examination management.
The Post-Pandemic Exam
Since the beginning of the global pandemic in 2020, the world has “gone virtual”—with virtual happy hours, virtual school, virtual doctor appointments (no virtual dentist, sorry!) and, yes, virtual regulatory examinations. Communication has always been of utmost importance during every phase of an examination, however a lot of the components of the examination management process were turned on their heads during the dramatic shift in work environments.
And just as organizations were getting used to managing virtual examinations, it is important to remember how to handle them appropriately as they resume on-site—or in some hybrid mix of online and real world settings. Managing examinations is a process in and of itself, and there are nuances to handling virtual and in-person exams effectively.
Exam Planning and Preparation
Planning and preparing for an examination determine how well it will be managed. Without proper preparation, a lot of surprises can arise once the exam begins, including:
- Audit (internal or external) or compliance issues may not have been addressed.
- Changes to laws and regulations may have been overlooked.
- Unvalidated data, especially as it relates to Home Mortgage Disclosure Act (HMDA), fair lending, and fair servicing examinations, can lead to potential false positives and other inaccuracies.
Going into an exam, it is important to know the story your processes, data, and documents tell.
New Essentials for Managing Exam Teams
After determining whether you are prepared from a data and issue management perspective, it’s key to ensure that you have the best team to manage the exam. Understanding the scope of the examination and then determining the needed stakeholders and subject matter experts will help to get you on the right track. Your friendly IT department is going to be even more important when it comes to managing virtual exams, especially if examiners need access to certain systems in order to perform their fieldwork.
One of the biggest parts of the exam management process is facilitating and gathering the information, data, and documentation needed to fulfill the initial (and sometimes subsequent) information requests. For some smaller organizations, where the examination team was under the same roof, it was easy to have check-ins with the team to see how it was progressing with requests. With a virtual workforce, it is not as easy to “drop in,” so a different approach is needed to manage requests. Having regular check-ins, say twice per week during the information request period, can help to ensure that the team is meeting its deliverables.
The Importance of Project Plans
A regulatory examination is a project to be managed much like any other project your team may undertake. Having a formal project plan and updating it daily can keep track of key dates and deliverables and will help ensure that you are meeting examiners’ expectations.
Project plans are often overlooked by project managers, but you can be assured that your examiners will not show up without a plan. So, prepare and update a well thought-out project plan calibrated for virtual, on-site, or hybrid exams.
Managing the Day-to-Day
The day-to-day management of an exam is the most critical phase, generally consuming the most time and requiring the closest oversight.
For an in-person examination, you’ll want to find a nice comfortable conference room (or reasonable facsimile) for your examiners. If examiners are virtual, you should set up an online conference room.
When facilitating an examination, it is best to keep everything as organized as possible, including status updates and requests for information and documents. A great way to manage all this is to have everyone in one room. If a physical location is not possible, having a virtual location where these activities can be managed can help relieve some exam stress.
Communication Is Key
Communication is a key part of managing the day-to-day portion of the exam. Examiners will ask follow-up questions that will require either a written or “in-person” response, will ask to interview certain key members of your organization, and will also request additional documentation and information for review. If the examiners and your team are on-site, you can manage this by meeting face-to-face. You should also sit down with key stakeholders to prepare them for their meetings with the examiners. To communicate effectively, give comprehensive, well thought-out answers that address only the question being asked, respond timely, speak clearly, and make eye contact. These are great tips for in-person examinations, but how about virtual?
Similar rules apply virtually, only the medium of communication makes them a lot more difficult. For those virtual sessions where you or the team are “face-to-face” with examiners, the following should be considered:
- Ensure that you can effectively enter the virtual meeting or conference room to avoid appearing late or disorganized.
- Always look into the camera to make “eye contact” with the examiners.
- Act as you would in person, by greeting each person in the “room” and addressing them by name.
- Ensure that you ask follow-up questions where needed.
Since there is less face-to-face communication, examiners may give you more opportunity to provide written responses, which means that the same rules for vetting and comprehensiveness apply.
Reporting and Post-Exam Management
Once the fieldwork is done, what comes next? For an on-site examination, the exit meetings are generally held on-site and the final report will come within the agreed-upon timeframe after the examination has ended. There is not much change to this process for a virtual examination.
Of course, you’ll want to make sure that all issues identified during the examination are addressed timely and effectively. Taking time to look back on how the examination went can be helpful to understand what you did right and what you may want to improve upon during your next examination. Holding and documenting a “lessons learned” session will be invaluable next time.
Whether in-person or virtual, regulatory examinations are a fact of life for financial institutions. How effectively you handle them can make a significant difference for your organization—and for your sanity!
1 “Prepared Remarks of Acting Director Dave Uejio,” Consumer Financial Protection Bureau