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Regulators faulted for ‘box checking’ mentality on anti-laundering enforcement

This is the headline this week in a Source Media article.  The article goes on to say that regulators are being criticized for not looking deeper at anti-money laundering compliance.  The check box mentality is being criticized.  Why does this scare me?  Well, regulators don’t always work well together, in fact, they will tell you compliance doesn’t talk to safety and soundness and vice versa BUT that does not mean they don’t interpret what they think they hear.  Cracking down on regulators for checking boxes for AML enforcement can easily equate to cracking down on regulators for checking boxes for regulatory compliance in other areas.  Don’t kid yourself, they are all afraid of going the way of the OTS.  They cannot become expendable.  (note: my comments here are related to the agencies and not specific examiners.)

I think I have shared with you a conversation I had with an examiner last year, they want audits to change direction and be all inclusive.  They want a review of a loan file (compliance not financial) to include all regs that apply.  So that would include Reg. E, if the loan has an auto debit for the payment, as well as flood, TRID, SAFE, etc.   Most banks consider Reg. E for operations only, but it seems that approach must change.

I don’t see audit firms jumping on that band wagon just yet, but he who carries the biggest stick wins in the end.

 

Are you responsible at your bank for HR compliance?  Your first reaction may be no, but if there is a compliance violation, are you responsible to your management to be on top of it? Would you be held accountable for HR compliance?  I recommend you clarify with your management that HR is or is not covered under regulatory compliance and your purview. The most frequent error relates to the I-9 and a couple tips can keep you in compliance on these.  Thank you to Stephen Maule of McMahon Berger for these tips.

1-Never back date information on the I-9, just get a corrected one with the appropriate date.

2-Never get it signed until the individual has been hired, recommended to do on the 1st day at work.

3-Keep the I-9 separate from other HR files and not in the personnel file folder.

4-Make sure each you that you are using the most current, up to date form.

5-Keep copies of the forms you are provided for identification attached to the I-9.

Be sure to check out the revised/update the CFPB published August 28 for TRID.  Changes are effective 10-1-2018.

While the new president has promised changes in regulations, he is likely to focus on those regulations that impact business strategies, profits and reporting.  Think about it, he owns hotels, entertainment venues, golf courses, those are impacted by the EPA, taxes, accounting, and wage and hour regulations.  What is in it for him to loosen the strings on banking?  Add to that the fact that the CFPB and other regulators, such as the FDIC, are independent agencies, I doubt you will see much change in consumer protection regulations. We are likely to see changes in the accounting guidelines, such as FASB and even some tax relief, but…..

Consumer Protection is a  political hotbed, if a candidate is found to throw the consumer under the bus, so to speak, how will they fare in upcoming elections?  Just food for thought.

Don’t go thinking you are going to get lots of that much needed vacation time, I suspect we will see little change.  I do think we won’t see many “new” regulations, but remember, the Dodd-Frank is full of new regulations that haven’t been implemented yet.

Compliance Officers BEWARE! Bank management in your bank is likely enjoying the thought that compliance is going to be less stringent, at least for the next 4 years. Here is my take on what the future holds:
1-Compliance Budgets will be tightened
2-Compliance Hiring will see freezes, certainly no department expansion.
3-Regulators will be looking for number 1 and 2 to occur and will see this as a sign your bank management is less committed to ongoing compliance.
4-It’s a circle, regulators will begin to issue more MRA (Matters Requiring Attention) and
5-Staff will then be added, budgets increased.
While praying that your bank does not take this position, remember, this too shall pass.

Many banks are not properly managing escrow accounts.  And the CFPB allowed a small servicer exemption when they required banks to escrow for all loans if the bank “required” escrow before 2012.  Many trainers concluded early on this meant if you had the ability to escrow for HPML loans, thus all banks had to have escrows and later the CFPB clarified what they meant, not all banks had to escrow.  If you had only escrowed because a loan was a higher priced mortgage, then you did not have to offer escrowing to all borrowers, if you fit the definition of a small servicer.

Be sure you aren’t making work for yourself.  Escrows provide for potential fair lending issues, as well as RESPA violations, are you sure you want to offer them if you don’t have to?

Voluntary escrows: So if you offer voluntary escrow accounts, consider how you track them and document them.  They are not covered by RESPA rules, if they are voluntary.  Great opportunity here to offer the service without additional compliance risk.

You can contact me for more information.   I would be interested to hear your feedback.

If you have not had a compliance exam in the last two years, be prepared for increased scrutiny of your CMS.  Here are some tips:

Annual approval by the board,

Budget specific to compliance and determine how much is spent per employee (national average is edging up to $2,000 per employee)  Take total budget, divide by number of employees, be sure to include the cost of all compliance training.

Consider a checklist to be used to qualify the Compliance Officer and/or staff.  I will gladly provide a sample if requested.

Written program, including a tentative audit schedule.  Use the word tentative, so you are not held exactly to the schedule, we all know things come up.  If not tentative, would need changes approved by the board……

Incorporate the program with all other bank policies.  This program does not just belong to compliance.  It is an enterprise wide program.

Consider an org chart for the compliance department.  Outline who does what and be specific, helps all parties understand the work flow and expectations.

I recommend internal audit, CRA and BSA report under the Compliance umbrella.  Think about it, the work flow and responsibility just makes sense.  Compliance can assist with the internal audit and BSA monitoring of loan files and new accounts, helps create efficiency.  CRA is examined with Compliance, so that one is an easy jump.

Hope this helps and you find yourself an improved compliance rating.

 

Wikipedia (edited to fit for compliance) : Guru is a counselor, one who helps mold values and compliance knowledge, shares experiential knowledge as much as literal knowledge (school of hard knocks), a compliance resource, an inspirational source and who helps in the evolution of a new or experienced compliance officer. The term also refers to someone who primarily is one’s compliance guide, who helps one to discover the same potentialities that the guru has already realized.

 

I hope that the many compliance officers I have mentored over the last 40 years feel I somewhat fit this description.  I have tried to share my passion for regulatory compliance.  A desire to read and understand regulations, be able to interpret them and decide what works best for a specific bank, and then develop and implement procedures.  That is the life work I chose and what I remain passionate about 40 years later.

 

I hope you enjoy my blogs and please do feel free to participate.