ABA Bank Compliance - November/December 2007 - (Page 2) Even though the primary focus for bankers in 2008 will continue to be fair lending and Fair Lending: Integrating “Real Time” Compliance Checks Recent fair lending enforcement action by federal and state regulatory agencies is casting a long shadow over financial institutions. Lenders are spending more time and money than ever to ensure that loans are distributed fairly. The key to addressing the challenges of fair lending compliance—and regulatory compliance in general—is to integrate compliance within business processes versus an approach that adds compliance as a back-end or overlaid set of activities. This practice enables a lender’s compliance department to better manage regulatory risk. Another benefit is the building and fostering of a “compliance culture” across the organization that will ultimately place the organization in good stead. A greater level of visibility increases the motivation of lending staff to proactively avoid even the appearance of disparate treatment. Even a moderate effort at compliance can significantly help the organization identify and manage fair lending risk. Instituting controls in the lending process that proactively identify proposed loans with pricing above statistically predicted norms is an important step a lender can take to mitigate fair lending risk. One way institutions can prepare for a tougher regulatory environment is to adopt an integrated, automated, realtime fair lending review based on proven statistical methodology and informed by specific underwriting guidelines. This course of action allows lenders to prevent potentially discriminatory decisions and pricing without slowing down the lending process. Only those decisions or prices outside a loan program’s policies and previous decision and pricing patterns are flagged for further investigation. This enables banks to focus valuable resources on those loans where problems likely exist instead of monitoring for issues after the loan—with its associated risk—has been funded. Real-time fair lending reviews provide instant feedback at the point of decision or pricing. This ensures that frontline lending personnel can be both held accountable and properly trained. When a decision or price is identified as potentially discriminatory, the underwriter is notified, as are the proper fair lending and risk management channels. A greater level of visibility increases the motivation of lending staff to proactively avoid even the appearance of disparate treatment. Instant review of programs and 2 NOVEMBER | DECEMBER 2007 ABA Bank Compliance products can also proactively highlight and help to avoid disparate impact of policies and underwriting guidelines. Management can also use this real-time information to better understand how policies and guidelines apply in active situations, as opposed to on paper. Immediate feedback allows for timely action to modify the loan products, programs, guidelines, and suitable exceptions to make these programs and products work, while still maintaining an impenetrable risk shield. By monitoring, analyzing, and managing critical data at multiple checkpoints, infractions can be prevented before they happen. The key is a comprehensive fair lending process along with a complete fair lending management solution that can determine in real time if an applicant is being overcharged or unjustly denied. This is particularly important when sourcing loans through a wholesale channel, especially with mortgage brokers located outside the bank’s primary assessment area. BSA/AML: Establishing a Comprehensive Risk-Based Program That Utilizes Technology The BSA/AML compliance landscape continues to evolve, coming under ever-greater regulatory scrutiny. In response, banks should establish comprehensive compliance programs that include technology solutions that will enable them to meet regulatory requirements and mitigate money laundering and terrorist financing risks. Institutional and customer-based risk assessments are critical components of an effective BSA/AML compliance program. Assessments should be based on the financial institution’s asset size, locations, customer demographics, and operating structure. Money laundering and terrorist financing risks are influenced by the types of products and services offered, along with the domestic and international geographical markets served by the bank. The impact of policy and regulatory changes are also factors that influence risk. BSA/AML compliance policies and related implementation procedures must be developed to effectively incorporate risk assessment. Regulators expect policies and procedures to be designed and executed for the purpose of limiting and controlling exposure to money laundering and terrorist financing risks. Appropriate policies are commensurate with each bank’s unique profile. Recurring BSA/AML training of the bank’s board, management, and employees is an important element in any compliance program. Training should provide an awareness of the forms of money laundering and terrorist financing, recognition of suspicious activity red flags, an understanding of organizational policies and procedures and the possible penalties for noncompliance, and documentation of employee training attendance and training materials used. Finally, compliance audits (independent testing) must be performed regularly as the primary means of assessing the
Table of Contents Feed for the Digital Edition of ABA Bank Compliance - November/December 2007 ABA Bank Compliance - November/December 2007 ABA Bank Compliance - November/December 2007 - (Page 1) ABA Bank Compliance - November/December 2007 - (Page 2) ABA Bank Compliance - November/December 2007 - (Page 3) ABA Bank Compliance - November/December 2007 - (Page 4) ABA Bank Compliance - November/December 2007 - (Page 5)
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.