The COVID-19 pandemic caused an uptick in financial crimes, unemployment, economic distress, credit risk and operational challenges. Additionally, financial institutions are operating and interfacing with clients differently. These factors make it more important than ever to closely monitor for suspicious activity, adhere to standard policies and procedures and keep risk in mind when adjusting processes.
Against this backdrop, Bank Secrecy Act (BSA), liquidity, underwriting standards and credit concentration are current areas of regulatory emphasis. Financial institutions should prepare for their next regulatory examination by performing a self-assessment centered on these focus areas. RKL’s team of industry experts created the below checklist to walk financial institutions through the process. Contact your RKL advisor with specific questions or for help with assessment.
Regulatory Exam Prep Self-Assessment Checklist
Bank Secrecy Act (BSA)
- Are sufficient internal controls in place around customer due diligence (CDD), enhanced due diligence (EDD) and the detection and decision-making process for suspicious activity?
- Is your CDD process comprehensive? Does it consider transactional dollar ranges, sales from business operations, major customers/suppliers, products and services offered and geographic area where a business operates? These factors provide critical context about the purpose and nature of the account relationship and expected transactions.
- Are EDD requirements established, consistently followed, well documented and performed timely?
- Do suspicious activity identification and reporting procedures emphasize timely reporting, essential and accurate information and documentation of the review process?
- Are you regularly reporting BSA department performance to the board or a designated committee?
- Is BSA/AML risk properly assessed and supported with statistical data and trend analysis?
- Are Anti-Money Laundering system alerts and cases properly investigated, well documented and addressed timely?
Liquidity
- Are you managing short- and long-term liquidity to meet anticipated and unanticipated funding needs?
- Does liquidity planning take into account (at minimum) the following factors? Cash flow projections over time (six to 12 months), stratified deposit cash flows, periodic cash flow gap analysis, cash flow deficit limits, realistic stress testing, and reconciled financial data to the balance sheet, budget and anticipated funding of loan commitments
Contingency Funding
- Do you have an early warning trigger report for contingency funding and liquidity stress events?
- Are you routinely performing liquidity stress scenario analysis? If so, does it include a severe, less than well-capitalized scenario?
Credit and Concentration Risk
- Are credit decisions consistently documented in a standardized credit memo with adequate detail to support credit decisions and compliance with underwriting standards?
- Are loan files well-organized and documented in accordance with policies and procedures?
- Does the board or applicable committee ensure that exceptions are not excessive and do not expose the institution to unwanted credit risk?
- Are risk management practices in place to identify, monitor and control risks related to asset concentrations?
- Have you identified the risks and vulnerabilities associated with concentrations that could affect earnings and capital?
- Are relevant economic, market and competitive conditions affecting the risk profile of concentrations regularly monitored, reporting to the board and stress-tested for potential impact?
- Does cash flow modeling capture the risk related to all funding sources?
Management Succession
- Does your management succession plan include the BSA officer and the IT manager positions, if considered critical under the risk profile?
Vendor Management
- Do you risk rate all vendors based on the level of services provided to the institution and access to customer data?
While this checklist is not all-inclusive, it is an important first step in assessing your financial institution’s standing ahead of your next examination. RKL has a deep bench of professionals focused on serving financial institutions. Contact your RKL advisor or reach out using the form below with questions or for assistance implementing the concepts described above.
