The Value of a Compliance Management System
A financial institution’s Compliance Management System (CMS) is the backbone of risk management and also acts as the pathway to success (or failure) when it comes to reviews, exams and audits. The CMS should cover all of an institution’s risk areas ranging from loan processes to customer/member complaints. A robust and comprehensive CMS helps ensure proper procedures are being followed, uncovers risks before potential issues arise and helps assure compliance with regulatory demands and requirements.
The CMS touches almost every department, from marketing to administration. The FDIC, just one of the regulatory bodies of several who evaluate the efficacy of a CMS, has provided guidance that a CMS is how financial institutions 1) learn about compliance responsibilities, 2) make sure employees know and understand compliance responsibilities, 3) review operations to ensure responsibilities are fulfilled and requirements met, 4) define risk areas and take corrective action and 5) update materials as needed.1
A CMS that has been implemented and functioning the way it is intended can save a financial institution from compliance failure and fines as well as a loss of reputation.
Before examining preventative measures, let’s delve into what’s expected from a CMS. Although regulatory bodies are looking for the same general and overall components, emphasis can differ based on the scope of the audit or exam, the examiner, and of course the regulatory body doing the examination.
The FDIC presents three elements considered essential for an effective CMS.
Board and Management Oversight
It is imperative that the Board and Management be committed to compliance efforts. A culture of compliance encourages cross-enterprise support and is supported by a well-defined policy, clear expectations and a compliance officer with the authority to do what is necessary to keep the institution as free from risk as possible. This is often referred to as the “tone at the top”.
The Compliance Program
A strong compliance program includes policies, procedures, training and monitoring guidelines that are clearly stated and carried out. Response to consumer complaints is an integral part of the compliance program. The path for escalation and resolution should be adopted and consistently applied enterprise-wide.
The Compliance Audit
An independent review of how an institution adheres to internal policies and procedures, and how these policies and procedures comply with consumer protection laws and regulations, helps ensure compliance and identify risk.
The CFPB breaks a CMS into two main elements: Board and Management Oversight and the Compliance program. When reviewing a CMS, the CFPB examiners apply the following five modules.2
Module 1: Board and Management Oversight
Examiners focus on the Board and Management’s commitment to the CMS, change management, identifying risk and understanding its source and the ability to proactively identify risk and take corrective action.
Module 2: Compliance Program
A solid CMS includes a clearly defined compliance program that details policies and procedures, provides effective and relevant training, performs routine monitoring and audits and has a responsive customer/member complaint system in place.
Module 3: Service Provider Oversight
Financial institutions are responsible for their service providers. They must ensure service providers are in compliance with Federal standards to avert consumer harm and avoid liability.
Module 4: Violations of Law and Consumer Harm
If a violation is discovered, examiners will consider the cause, severity, duration and prevalence of the violation. Examiners will delve into the CMS to make sure it identified the issue and triggered the necessary corrective action.
Module 5: Examiner Conclusion and Wrap-up
No matter the institution’s risk profile, examiners will conclude by summarizing and recording their findings and identifying weak spots. They must also review their findings with the bank or credit unions and outline considerations for the following exam and/or any follow-up deemed necessary.
In a broader sense, like the FDIC and CFPB, other regulatory bodies’ examinations consider different components necessary for an effective CMS. But, on a more granular level, each cover similar topics, each nuanced by that body’s particular area of concern. For example, the CFPB’s Compliance Program includes policies and procedures, training, monitoring and/or audits and the consumer complaint process while the FDIC spreads these essential components over the Compliance Program and the Compliance Audit.
With almost every detail of a CMS requiring a host of supporting documents, processes, tools, controls and functions, it’s imperative for the compliance officer to ensure their institution’s CMS answers the needs of each regulatory body. Doing it alone can be overwhelming. That’s where Marquis can help.
CMS Development and Maintenance
Identifying risk and weak spots can be challenging when reviewing how a CMS is functioning and details can be missed if the right questions are not asked and evaluated. Enlisting the help of Marquis Compliance Professional Services will ensure your CMS will effectively manage risk, support compliance and prevent consumer harm. Here at Marquis, we are well versed in the ins and outs of building, refining, and maintaining an effective CMS and will apply this expertise to your compliance program. We get what each regulatory body is looking for.
With recent submissions barely in the rear-view mirror, focus on the risks of potential CMS shortcomings should be on the top of all our minds. Now is the time to refresh and update your CMS. With the help of partners like Marquis Compliance Professional Services, by the time submission season or your next Compliance Exam rolls around your CMS can be addressing the examination nuances of the FED, FDIC, OCC and CFPB.
1 FDIC.gov https://www.fdic.gov/regulations/resources/director/presentations/cms.pdf
2 CFPB https://files.consumerfinance.gov/f/documents/201708_cfpb_compliance-management-review_supervision-and-examination-manual.pdf