June 2020 Foodman website and JD Supra

The Covid-19 Pandemic and the accompanying reduction in economic activity has been a rationale for Financial Institutions (FI) to re-analyze their budgets for compliance training and education.  FIs, as well as  businesses in other industries, are seeking to preserve liquidity through reducing expenditures.  Not considering the risk-associated dangers resulting from compliance cost-cutting could be serious mistake. Because, cutting compliance costs, may pose a significant risk to a FI’s ability to manage financial regulatory oversight.

Not the right time to cost-cut compliance efforts due to the Convergence that is occurring

Regulatory agencies remain committed to appropriately investigating and prosecuting FIs for  compliance weaknesses and non-compliant activities. This is evidenced by the convergence that is occurring in the enforcement of FATCA, AML / PLAFT, OFAC, FCPA and FinCEN regulations, i.e. – the United States Treasury and the “SEC” have agreed to share resources and cross-train investigators/regulators.

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, State Liaison Committees (Agencies) and FinCen are apparently engaged in “converging”; that is they are sharing information, investigative and regulatory resources for that purpose with the United States Department of Justice (DOJ) supervising all of it.

The Convergence seems to indicate that oversight and enforcement could intensify

U.S. Enforcement Authorities sharing resources signals a more cohesive enforcement approach.  And, each of the agencies wants the Financial Institutions that it regulates to separately allocate and finance staffing and training to comply with these “interrelated laws and regulations”. The interrelation is possible because of the analysis potential of “Big Data” provided through current technical capabilities and artificial intelligence. 

FIs are under a lot of stress

FIs must ensure continuity of their own operations. To maintain and increase their customer bases, they ought to provide customer care in non-traditional ways by encouraging the use of technology, deferring fees, and modifying loans, among other customer accommodations. 

Many FIs that participated in the Cares Act Paycheck Protection Loan Program – with the encouragement of the U.S. Treasury, – “skipped” standard Know your Customer and Loan Due Diligence Procedures.  Lending risk was exacerbated by requiring FIs to accept loan applications from Borrowers with whom the FIs did not have a pre-existing relationship.   FIs are further confronted with operational burdens centered around missing paperwork, potential mistakes in loan applications, and possible cases of borrower fraud. 

FIs are required to provide training and education to their employees

Given the current uncertain and volatile environment, a FI’s risk assessment process is critical to an effective well-designed compliance program. FIs ought to reinforce and update all compliance efforts, policies, and procedures.  Employee training and regular tested continuing education to mitigate risks is imperative. 

Consult your Compliance Expert.