What Is a Compliance Examination?

A compliance examination is a periodic examination of banks to make sure banks are operating in compliance with consumer protection laws, fair lending statutes, and the Community Reinvestment Act. Compliance examinations are typically focused on operational areas that pose the biggest compliance risks, and focuses on the procedures the institutions have in place to ensure compliance with regulations.

Understanding Compliance Examination

The compliance examination is one of three types of oversight activities carried out by the Federal Deposit Insurance Corporation (FDIC). Other activities include visitations and investigations. Visitations are usually conducted to review compliance for newly-chartered institutions and to review the progress on actions taken to correct previous infractions. Investigations can be launched if problems are brought to the attention of the FDIC.

Stages of a Compliance Examination

A compliance examination takes place in three distinct stages. These are pre-examination planning; on-site and off-site review and analysis; and communicating the findings to the institution’s management.

The first stage, pre-examination planning, requires the compliance examiner to collect information available to him or her from FDIC databases and records and to contact the financial institution under review to request further documents and information. The examiner may, during this stage, attempt to narrow down his or her requests for information and documents to only those that are necessary for the examination to come. The examiner will make such a request for documents and information by writing the institution a letter requesting specific documents and information. He or she will then plan and prepare for the examination.

The review and analysis phase of a compliance examination allows the examiner to carefully assess and evaluate the compliance management system in use at the institution in question. He or she will document any violations of federal consumer protection laws and regulations, if they are found, and will further document any weaknesses in the compliance management system. He or she will begin this phase by analyzing the type, complexity, and level of the institution’s financial operations; this will allow the examiner to determine the scope of the examination and deploy resources where they are most needed, as well as to identify the risk of potential consumer harm posed by any legal or regulatory violations.

Finally, the examiner must communicate his or her findings to the institutional leadership. This includes making recommendations and getting management to commit to taking corrective action, if necessary. Usually, findings will be communicated during an exit meeting with the Board of Directors or other members of management.