The members of the Federal Financial Institutions Examination Council (FFIEC) announced an update on its examination modernization project that was undertaken following the review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA).

The project’s scope is to identify and assess ways to improve the effectiveness, efficiency, and quality of community financial institutions safety and soundness examination processes, particularly through increased leveraging of technology. The agencies expect these efforts to help reduce unnecessary regulatory burden on community financial institutions.

The FFIEC members have, in the past, taken steps to enhance the efficiency of the safety and soundness examination process, including:

Moving from a one-size-fits-all examination process to a risk-based approach that tailors examinations to the size, complexity, risk profile, and business model of each institution.

Leveraging technology to improve offsite surveillance systems and improve the efficiency of onsite and offsite reviews.

FFIEC members also sought feedback from selected supervised institutions and examiners, which led to an initial focus on four areas that have the potential for the most meaningful supervisory burden reduction:

  • Highlight and reinforce regulator communication objectives before, during, and after examinations.
  • Leverage technology and shift, as appropriate, examination work from onsite to offsite.
  • Continue to tailor examinations based on risk.
  • Improve electronic file transfer systems to facilitate the secure exchange of information between institutions and supervisory offices or examiners.

While initial efforts will be focused on the four themes, the examination modernization project is a long-term endeavor and other areas of improvement may emerge.

While NCUA is not required to participate in the EGRPRA process, it does so voluntarily. In 2016, NCUA launched a similar effort—its exam flexibility initiative—and the agency incorporated parts of that initiative into its exam process.

Examiner guidance will cover the following community bank examination communication or transparency practices:

  • Assist community financial institutions to prepare for the examination by providing prior notification and addressing spacing needs, staffing, and logistics.
  • Tailor the examination request list and scope to the unique risk profile and business model of the institution.
  • Facilitate the secure exchange of information between institution management and examiners.
  • Inform institution management of areas under review and provide management the opportunity to communicate any additional information or clarification before the conclusion of the examination.
  • Establish clear expectations regarding items the financial institutions are expected to address.