Recap From the Tennessee Bankers Association Compliance Conference Regulator Panel
The Tennessee Bankers Association (TBA) recently held its annual Compliance Conference, and a highlight of the conference was a regulator panel that included representatives from the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Federal Reserve, and the Tennessee Department of Banking.
When panel participants were asked what the most common exam violation was, the common response was flood insurance compliance. The examiners went on to note that all examinations will now be risk-focused, but flood will always be included.
Much of the conversation related to the topic of how to develop and maintain a strong compliance management system (CMS). It was recommended that first and foremost there be strong board and management oversight, taking a proactive approach in times of change. A proactive approach means conducting ongoing monitoring and correction of findings that goes to the root cause of the issue. A strong CMS is one that prevents the problems from recurring. Next, self-identification of problems and weaknesses with corrective action taken is necessary for a strong and effective CMS. This includes conducting risk assessments on an annual basis. These risk assessments will be used to determine the scope of examinations, and all areas of risk should be identified and mitigation efforts noted.
Fraud, fair lending, and artificial intelligence (AI) were addressed as hot topics. The top fraud scams that examiners were seeing at banks as of the time of the panel were elder financial exploitation, wires sent as a result of email compromise, check fraud, P2P payment scams, text message and social media scams, and wire fraud. These scams change often, and fraudsters are always coming up with a different way to steal from our banks and their customers, but the panelists emphasized the importance of adequate internal controls to decrease losses and risk of loss related to these threats.
The common advice among the panelists related to fair lending was not to let up on internal and external monitoring and reviews just because the exam cycle is long and possibly more lenient. Everything that banks have been doing continue to matter. All banks need to have a fair lending risk assessment and an action plan for geographical areas with a high risk for redlining.
The regulators’ expectations with regard to a bank’s use of AI were addressed, and it was noted that while this is an ever-evolving area, banks should be sure to match controls with risks and conduct testing, monitoring, and documentation, as human oversight is expected. AI use and AI vendor management should be built into a bank’s CMS. One panelist noted that 90% of the banks his agency supervises responded “No” when asked whether the bank was using AI. Most banks are using AI and need to understand how and where it is being used.
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