Our banking risk and regulatory experts are excited to attend the upcoming XLoD Global event in New York on June 11th.  

What is XLoD Global? 

The world’s leading financial institutions and regulators come together at XLoD to discuss the future of non-financial risk and control. Representatives from all three lines of defense—operational management, risk management/compliance, and internal audit—attend to present, discuss, and learn about industry shifts that are impacting risk and regulatory compliance.

Sessions include a keynote interview with former FBI director James B. Comey as well as topical discussions spanning regulatory risk, market abuse, and leveraging technology in automation (RPA), data analytics and ML/AI.

Understanding the Industry: Risk & Regulatory Themes We’re Tracking

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Carl Aridas, a seasoned compliance expert and leader of Perficient’s Banking Risk and Regulatory Center of Excellence (CoE), remembers when a couple risk policies—mandatory two consecutive weeks away from the office and basic dual control procedures—were cutting-edge. The landscape has evolved, and organizations must maintain pace.

Many banking firms that are operating with multiple legacy systems are curious about implementing new AI technologies. They want to know how AI and machine learning can enhance the capabilities of compliance, legal, and risk professionals in managing non-financial risk. 

He looks forward to the session, “Harnessing AI & Cutting-edge Technology for Enhanced Risk Detection,” and also plans to attend “Harmonization and Integration of NFR frameworks.” With extensive experience designing and implementing NFR frameworks for major banks, Aridas is going to be a keenly attuned to this discussion. 

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Chandni Patel, one of our financial services digital assets team leaders, is also eager for the conference. As a risk expert, Patel is especially excited about attending the keynote address by Mihaela Nistor, chief risk officer at the Federal Reserve Bank of New York. 

Throughout her career, Patel has been approached by many financial services executives facing fines and regulatory issues related to monitoring trading activities. She is excited to attend “Surveillance of WhatsApp and Social Media,” and hear how technology data insights and sentiment analysis can mitigate conduct risk and enable proactive market abuse management. 

She also looks forward to the panel discussion, “Innovations in Conduct Surveillance and Monitoring Practices,” to hear about the future technology and surveillance solutions that banks are exploring.

Meet Our Banking Risk and Regulatory Experts at XLoD

If you’ll be at the XLoD Global conference in New York, our team would love to connect and discuss the challenges and opportunities that are top of mind in your organization. 

Leading financial institutions count on our financial services expertise to solve complex digital challenges and compliantly drive growth. Contact us today to learn more about our digital solutions.  

This blog was co-authored by Chandni Patel and Carl Aridas.

How are Federal Credit Unions Regulated? 

Banking professionals are aware that the Federal Reserve Bank (Fed), the Office of the Comptroller of the Currency (OCC), or for state-chartered banks, the Federal Deposit Insurance Corporation (FDIC) serves as their primary federal regulator. For those whose deposits are insured, the FDIC acts as a secondary federal regulator, while the Fed or OCC remains the as the primary regulator.

Conversely, credit union executives know that their primary federal regulator is always the National Credit Union Administration (NCUA). Established by Congress in 1970, the NCUA operates as an independent federal agency within the executive branch, fulfilling multiple roles including deposit insurance for federally insured credit unions, safeguarding the interests of credit union members, and overseeing the chartering and regulation of federal credit unions. 

Capital Requirements 

Capital requirements play a pivotal role in the success of both banks and credit unions. While maintaining higher capital reserves enhances a credit union’s resilience against economic downturns, the aim is to strike a balance and avoid being excessively capitalized to optimize deposit funding and earnings.   

Until December 31, 2021, all credit unions were required to compute the Net Worth Ratio (NWR), while credit unions with total assets exceeding $50 million also had to calculate the Risk-Based Net Worth (RBNW) ratio. However, starting on January 1, 2022, the definition of a complex credit union shifted to those with quarter-end total assets surpassing $500 million on its most recent Call Report.  

While all credit unions must still compute their NWR, only complex credit unions are mandated to perform an additional capital calculation, adhering to either the Risk-Based Capital (RBC) framework or, if eligible, the Complex Credit Union Leverage Ratio (CCULR) framework. 

Net Worth Ratio 

The formula for the Net Worth Ratio now reads as follows, referencing the reporting cell on the current NCUA call report:

• [(997 – NW004) / (NW0010 – NW004)] x 100 

The numerator begins with Total Net Worth, encompassing undivided earnings, other reserves, undistributed income, the Current Expected Credit Loss Transition Provision (CECL) and subordinated debt. Subsequently, NW004, representing the CECL Transition Provision, is deducted from the numerator.  

In the denominator, NW0010 factors in and considers and excludes Small Business Administration Paycheck Protection Program loans pledged as collateral to the Federal Reserve Bank Paycheck Protection Program Lending Facility. NW004, representing the Current Expected Credit Loss Transition Provision, is included in the denominator, and the formula deducts the CECL Loss Transition Provision, thereby excluding the CECL from the denominator and the asset class from the overall ratio. 

Risk-Based Capital Ratio 

The Risk-Based Capital Ratio, (RBC) involves a more intricate calculation of a credit union’s capital, aiming to adjust for the risk associated with the union’s assets. The formula, again referencing the cells in the NCUA’s call reports, is:

• RB0012/RB0171 x 100 

The numerator starts with the same Net Worth calculation used in the Net Worth Ratio, but additionally incorporates the allowance for credit losses and subordinated debt. It then subtracts the National Credit Union Share Insurance Fund (NCUSIF) Capital Deposit, goodwill and other intangibles, identified losses not previously recognized in the numerator, and mortgage servicing assets exceeding 25% of other total capital.  

The denominator, RB0171, represents the sum of all risk-based equivalents of both on-balance sheet and off-balance sheet assets. For on-balance sheet assets, each asset category, such as cash, loans, and securities, is assigned to a risk category, where the balance is multiplied by the respective risk category percentage.  

The standard risk categories include 0%, 20%, 50%, 75%, and 100%, 150%, 250%, 300%, 400%, and 1,250%. As the capital elements in the numerator increase, the ratio improves; however, an increase in risk-weighted assets in the denominator leads to a decrease in the ratio.  

For off-balance sheet assets, the contingent asset is multiplied by a credit equivalent amount (0%, 2%, 4%, 20%, 50%, 75%, 100%), reflecting the likelihood of the contingent asset being funded. This result is then multiplied by a credit conversion factor (10%, 20%, 50%, 100%), indicating the riskiness of the asset once it appears on the balance sheet. 

Complex Credit Union Leverage (CCULR) Ratio  

CCULR, pronounced cooler, represents the third capital calculation option for credit unions. Credit unions may opt for CCULR if they meet specific requirements including: 

• Being a complex credit union (>$500 million total assets) 
• NWR of 9 percent or more 
• Off-balance sheet exposures totaling less than 25 percent of total assets 
• Trading assets and liabilities that comprise less than 5 percent of total assets 
• Goodwill and intangible assets that are less than 2 percent of total assets 

By choosing CCULR, qualifying complex credit unions are relieved from calculating the challenging risk-based capital ratio discussed earlier. However, in exchange, they must uphold a higher Net Worth Ratio (9% vs 7%) than is otherwise required for the well-capitalized classification. 

For those interested in reviewing the detailed 37-page credit calculation directions prepared by the NCUA, the Financial Performance Report Ratio and Formula Guide is linked below:  

Learn More: Financial Performance Report Ratio and Formula Guide (ncua.gov) 

Your Expert Partner 

Contact us to discuss your specific risk and regulatory challenges. While many consulting firms have their experience limited to strictly banking, Perficient is a firm with more than 70 completed projects within the credit union industry.  

Our financial services expertise, blended with our digital leadership across platforms and business needs, equips the largest organizations to solve complex challenges and compliantly drive growth. 

At the core of our business’s successes lie the brilliant minds and unwavering dedication of our workforce—individuals who consistently prioritize delivering industry insights and pioneering digital solutions. Today, we’re spotlighting one exceptional individual: Carl Aridas. As the visionary leader of our Financial Services Risk and Regulatory Center of Excellence (CoE), Aridas personifies excellence and innovation in every endeavor.

Professional and Industry Background

Since joining the team four years ago, Aridas has been instrumental in bringing immense value to his projects. As a seasoned project manager and business compliance specialist, he brings to the table expert industry knowledge and a deep understanding of the intricacies of the risk and regulatory compliance space.

Aridas’ passion for risk and regulatory matters dates back to his early career with the FDIC during the Savings & Loan Crisis of the early ’90s. It was during this time that Carl dedicated himself to working as a regulator and conducting financial analysis.

Our Financial Services Risk and Regulatory CoE: Adding Business Value

As he reflects on the journey to establish the Risk and Regulatory Center of Excellence (CoE), it becomes evident that its creation stemmed from a genuine need within Perficient.

“I had been pushing for the establishment of the CoE for some time. Sellers had approached me with questions about risk and regulatory matters, making me realize the need for a centralized hub of expertise within Perficient. I wanted to go beyond project management and wanted to hold regular meetings and write blog posts. Collaborating with other fellow CoE members, we compiled a portfolio of successful risk and regulatory projects that Perficient had been able to deliver. By analyzing project outcomes, we were able to create an understanding of our capabilities within risk and regulatory. Today, our sales staff is able to gather useful information from many blogs and other content spanning various aspects of risk and regulatory reporting; they have the tools now to effectively engage with our clients.”

Learn More: 6 Reasons Financial Institutions Are Embracing Risk and Regulation Tactics

Fostering Inclusion Within the Financial Services CoE

Describing the environment within the CoE, Aridas emphasizes openness, collaboration, and diversity.

“As the leader of the CoE, what I like so much about it, and I try to foster it very very much, is the openness of the group. That new people are able to join. That new ideas are welcomed. If a blog needs to be rewritten or re-thought, if someone has a new idea, individuals can speak up and the work gets done.”

Aridas goes on to mention how each individual in the CoE contributes to continued shared knowledge and professional development saying “We have a fairly large group of 12 to 20 people who show up when and if they can; it is a diverse group. A group of people all over the globe with different backgrounds. When you get different people with different backgrounds in banking, risk, in data management together, it allows for a tremendous amount of cross-training. You can’t help but learn more during the weekly sessions. It allows us to always understand what’s happening in the market space.”

Driving Innovation

Without a doubt, Aridas’ invaluable contributions as a leader have not only propelled the success of the CoE but have also produced new opportunities within various business units. As he puts it: “I, as a leader, have already learned an immense amount and I’m grateful and thankful for that opportunity. I think by the end of the year we’re going to be 10 times better than where we are now. I’m looking forward to it.”

Unlock Our Expertise

Perficient’s Risk and Regulatory CoE was established to confront potential compliance issues. This proactive approach enables our clients to mitigate legal and financial risks while upholding a positive reputation and maintaining stakeholder trust.

Our unparalleled financial services expertise and digital leadership across platforms and businesses empower the largest organizations to overcome complex challenges and foster growth.

Contact us today to navigate the evolving landscape of risk and regulatory compliance successfully.

See More People Of Perficient

Learn more about what it’s like to work at Perficient at our Careers Page and see how our employees are transforming their industry’s landscape. We also invite you to see our open jobs or  join our Talent Community for more career tips, company updates, and more.

Read More: Driving Innovation: Inside Perficient’s Risk and Regulatory Center of Excellence

A top-leading bank, grappling with business and regulatory challenges, faced scrutiny after failing the Federal Reserve’s annual stress test. Addressing these deficiencies required a comprehensive approach, leading to the establishment of critical programs like the US Bank Holding Company (BHC) regulatory and comprehensive capital analysis and review (CCAR) program.

To bolster its capabilities and ensure compliance, the bank sought assistance from Perficient in delivering exceptional project and program management services to tackle its significant hurdles.

Perficient’s Project and Program Initiatives

Our involvement encompassed various facets of project and program management, including:

• Establishing foundational capabilities to foster smart, effective, and compliant business practices.
• Supporting the change management team in building a robust governance structure for program PMO activities.
• Partnering with stakeholders across risk, finance, technology, and operations, Perficient ensured seamless execution of capital and risk transformation (CART) PMO governance and oversight.

Another key initiative was implementing the OCC Heightened Standards guidelines, which our team utilized as a means to strengthen the bank’s governance and risk management practices.

Perficient provided invaluable support toward:

• Managing plan development and execution through to completion
• Aligning and prioritizing internal initiatives with OCC guidelines for enhanced governance across the three lines of defense (Management, Risk and Regulatory Compliance, Internal/External Audit)

Perficient was also pivotal in coordinating and supporting oversight of the CCAR process by:

• Conducting review and challenge sessions
• Developing forecasting models
• Facilitating process improvements to enhance execution efficiency

In addition to regulatory compliance efforts, Perficient spearheaded initiatives to address operational risks, enhance fraud risk management, and optimize software development life cycle processes. By conducting gap assessments, prioritizing remediation actions, and implementing comprehensive project plans, Perficient ensured the bank was well-equipped to mitigate risks effectively going forward.

Tangible Outcomes

The success of Perficient’s engagements is evident in the tangible outcomes achieved. Following our work, the bank was able to reap the benefits of:

• Improved risk measurement
• Enhanced capital allocation
• Effective responses to regulatory requirements

Ultimately, our team’s diligent project oversight and subject matter expertise enabled the bank to anticipate, evaluate, and mitigate risks proactively, thereby safeguarding its reputation and ensuring long-term resilience.

Interested in how Perficient can transform your business? 

Contact us today to learn more or visit our Financial Services page to discover other ways we provide our expertise. 

Protecting financial institutions from the perils of high-level embezzlement requires a proactive approach rooted in ethical conduct and stringent compliance measures. To fortify defenses against such threats, financial entities must implement proactive measures aimed at ensuring ethical conduct and compliance within their organizations.  

This blog outlines five key strategies to safeguard your business and mitigate the risks associated with senior-level embezzlement. 

SEE ALSO: A Guide to Fortify Your Institution Against Senior-Level Embezzlement Risks

1. Code of Conduct and Ethics Training

Regularly educate employees, especially senior management, on ethical conduct and the consequences of fraudulent activities.

Foster a strong ethical culture within the organization by addressing topics such as:  

• Ethical decision-making 
• Compliance with laws and regulations 
• Role-specific training 
• Continuous educational resources and updates 
• Leadership and culture examples from senior management 
• Online sources and support

2. Whistleblower Mechanisms

Encourage and support the reporting of suspicious activities through anonymous whistleblower hotlines or platforms. Create a culture that values transparency and integrity through implementing mechanisms like:

• Hotlines 
• Internal reporting systems 
• Legal protections 
• Third-party reporting services 
• Policy awareness and continuous training

3. Background Checks and Screening

Conduct thorough background checks on employees, particularly those handling sensitive financial information or holding senior positions.

These checks help in making informed decisions around the following:  

• Hiring 
• Partnerships

4. Rotation of Responsibilities

Implement periodic rotation of job responsibilities to prevent any single individual from having prolonged, unchecked control over financial matters.

This helps in: 

• Facilitates cross-training among employees 
• Aids in early detection of anomalies 
• Risk mitigation of fraud or errors 

5. Regular Audits and External Reviews

Conduct both internal and external audits regularly to detect irregularities or discrepancies in financial records. Engage independent third-party auditors to provide an unbiased perspective and valuable insights into areas of improvement.

Regular audits and reviews can:  

• Identify weaknesses  
• Provide compliance assurance 
• Mitigate risks and other gaps  

Periodically seeking the expertise of external auditors or consultants to review internal controls can offer additional assurance and recommendations for enhancing your institution’s overall security and compliance framework.  

By implementing these proactive measures, institutions can effectively mitigate risks associated with senior-level embezzlement while supporting a culture of accountability, transparency, and integrity across all levels of the organization. 

Reach out today to discuss your compliance efforts with our regulatory and risk services experts.  

Our Expertise 

Perficient’s Risk and Regulatory CoE was established to confront potential compliance issues. This proactive approach enables our clients to mitigate legal and financial risks while upholding a positive reputation and maintaining stakeholder trust. 

Understanding the intricacies of the risk and regulatory landscape is fundamental to our team members within the Risk and Regulatory CoE. With over 500 financial institutions relying on Perficient’s expertise, we equip them software and technologies to navigate these challenges seamlessly. 

Learn More: Risk and Reputation Matter  

This blog was co-authored by Perficient Risk and Regulatory CoE Member: Alicia Lawrence

The announcement of significant amendments to the New York State Department of Financial Services (NYSDFS) regulations on December 1, 2023, represents a pivotal moment for entities operating within New York’s financial sector.

The NYSDFS Part 500 amendments signal a crucial shift in the financial services regulatory landscape and underscore the importance of robust governance, risk management, and compliance frameworks.

Embracing these changes enables entities to:

1. Fortify operations
2. Safeguard stakeholders
3. Instill trust within the broader financial community

NYSDFS Part 500 Enforcement Commences April 29, 2024

Enforcement of the new NYSDFS Part 500 amendments is slated to commence on April 29, 2024, marking the dawn of a new era in compliance, particularly in domains such as risk assessments and asset inventory management for information systems.

Impacted institutions are subject to significant fines relative to the level of non-compliance identified by the regulators. 

Compliance Requirements

Institutions falling under the purview of the NYSDFS Part 500 amendments encompass a diverse spectrum, all mandated to adhere to these regulations.

These regulations impact entities operating within New York’s financial sector:

• State Chartered Banks
• Licensed Lenders
• Private Bankers
• Foreign Banks (licensed to operate in New York)
• Mortgage Companies
• Insurance Companies
• Service Providers

Recommended Next Steps From Our Risk and Regulatory Experts

Perficient’s risk and regulatory experts have deciphered the Governance, Risk, and Compliance (GRC) requirements outlined in the new NYSDFS Part 500 amendments.

We recommend that impacted organizations prioritize the following actions as part of a holistic approach to the regulation:

• Risk Assessments: Conduct comprehensive risk assessments, comparing existing processes, policies, and standards to industry benchmarks while identifying emerging risks and potential gaps.
• Control Testing and Gap Analysis: Evaluate controls to gauge their effectiveness in mitigating risks. By aligning with recognized frameworks such as NIST, COBIT, ISO, and FFIEC CAT, institutions ensure that all controls meet regulatory standards and address identified weaknesses.
• Issues and Findings Management: Document issues and gaps identified during risk assessments and control testing, crucial for compliance. Diligently manage issue remediation plans, monitor progress, and validate closure to ensure adherence to regulatory mandates.
• Reporting: Have access to comprehensive reports showcasing ongoing compliance efforts. These reports will provide insights into regulatory compliance, summarize remediation activities, and offer trend analysis to facilitate informed decision-making.

Looking Ahead

With the enforcement deadline of April 29, 2024, fast approaching, financial institutions subject to NYSDFS Part 500 amendments must accelerate their compliance initiatives.

Our Risk and Regulatory Center of Excellence (CoE) remains at the forefront of evolving financial rules and regulations, ensuring readiness to tackle emerging challenges and safeguard financial institutions and their customers. Perficient’s CoE guidance underscores the significance of aligning with regulatory requirements to uphold the integrity and security of New York’s financial ecosystem.

Learn more about our Risk and Regulatory Solutions and discover how Perficient can fortify your business against regulatory challenges today.

Our success at Perficient emanates from the dedication of our team. We take immense pride in recognizing that our committed individuals propel innovation and drive change within our industry. Every voice within our organization holds significance, none more so than Carolyn Lee, a Project Manager (PM) in our Financial Services business unit and a leader in Perficient’s Risk and Regulatory Center of Excellence (CoE).

The CoE Background

Perficient’s Risk and Regulatory CoE was established to confront potential compliance issues. This proactive approach enables our clients to mitigate legal and financial risks while upholding a positive reputation and maintaining stakeholder trust.

Understanding the intricacies of the risk and regulatory landscape is fundamental to our team members within the Risk and Regulatory CoE. With over 500 financial institutions relying on Perficient’s expertise, we equip them with cutting-edge software and technologies to navigate these challenges seamlessly.
Learn More: Risk and Reputation Matter

Meet Carolyn

Introduce yourself and provide an overview of your role at Perficient:
I am a project manager within Financial Services (FS). I have worked in consulting for the last six years before coming to Perficient. I joined Perficient through the Management Consulting business unit and started with FS a year ago. As a PM in FS, I support delivery oversight of two of our biggest accounts to ensure we are meeting and beating client expectations and that our team members are supported to succeed. I also enable recruiting and onboarding for both accounts, help manage the client relationship, and support sales cycles and account strategy.
What drew you to risk and regulatory matters?
I was the PM on a project supporting risk and control assessment (RCSA) testing and formed deep relationships with the team members who are special matter experts (SMEs) in the space. I am always looking at ways I can drive action for Perficient using my project management and communication skills and this is one area I have focused on. I understand the value of the relationship and have used my knowledge of greater Perficient and my relationships with our SMEs to enable Perficient to support our client’s risk and regulatory needs.
How do you see the Center of Excellence contributing to Perficient’s overall success and client satisfaction?
I see the Risk & Regulatory Center of Excellence playing a crucial role in enhancing client satisfaction in a variety of ways:

• Expertise and Specialization: The CoE is a team of experts who specialize in risk management and regulatory matters. This expertise can lead to a deeper understanding of client needs and challenges, resulting in more effective and targeted solutions.
• Best Practices & Standards: We can leverage the CoE to establish and promote the best risk and regulatory practices within Financial Services. This ensures that the services provided to clients adhere to the highest quality and standards, instilling confidence and trust.
• Knowledge Sharing: The CoE is a knowledge hub, and we can leverage our various experiences and insights to educate not only each other but the greater company. This will help ensure that everyone is aligned with the latest information, which can result in more informed decision-making and improved service delivery.
• Collaboration: The CoE is a collaborative space that fosters communication and cooperation. Improved collaboration can lead to an integrated approach to client service. It can help enable our sales teams to understand where we can best serve our clients from a risk and regulatory perspective.
• Innovation: By staying at the forefront of risk and regulatory trends, we can drive the development of new and improved services or solutions, meeting evolving client demands and expectations.

How would you describe the culture within Perficient, particularly within the Risk and Regulatory Center of Excellence?

Here at Perficient we believe in empowering our people and know that it is our people that make the difference. Perficient promises to challenge, champion, and celebrate our people. I see this culture in the CoE where each member brings their own experience and expertise to the table to enable Perficient to be at the forefront of risk management and regulatory capabilities and ultimately help drive solutions and results for our clients.

A Shining Example

Carolyn Lee’s journey within Perficient’s Financial Services division and Risk and Regulatory CoE exemplifies our commitment to fostering talent and driving excellence. Her innate ability to cultivate relationships and her astute understanding of risk and regulatory matters have significantly contributed to Perficient’s success – brava Carolyn!

SEE MORE PEOPLE OF PERFICIENT

Learn more about what it’s like to work at Perficient at our  Careers Page and see how our employees are transforming their industry’s landscape. We also invite you to see our open jobs or  join our talent community for more career tips, company updates, and more.

This post has been updated to reflect FINRA Regulatory Notice 24-02, issued January 23, 2024.

The COVID-19 pandemic prompted several unprecedented shifts in society, notably impacting the workplace and necessitating the adoption of innovative technologies that facilitate collaboration and efficiency in a work-from-home (WFH) environment.

For brokers, in the financial services sector, remote work became especially difficult due to the requirement for firms to register and supervise all home office “branches.” However, as remote work has become the new norm, the Securities Exchange Commission (SEC) has provided its approval to revise Rule 3110, easing the requirements for brokers choosing to work from home.

Work-From-Home (WFH) Background

Before the pandemic, firms were required to submit branch office applications on behalf of all the “branches.” Additionally, these branches underwent annual on-site inspections to ensure compliance with regulations.

Throughout the pandemic, the Financial Industry Regulatory Authority (FINRA) temporarily suspended the requirement for firms to submit applications for all office locations that were opened in response to the pandemic. FINRA also implemented a temporary rule (FINRA Rule 3110.17), which allowed member firms to conduct the annual inspections of their branch locations remotely.

Without action, this temporary relief would have expired on June 30, 2024, and would have significantly impacted the industry due to an estimated 75% increase in residential non-branch locations between December 2019 and December 2022.

What’s New?

Luckily, FINRA proposed two main revisions to Rule 3110:

1. Categorize residential home offices as “residential supervisory locations” (RSLs), which should be treated as non-branch locations, subject to safeguards and limitations.
2. Adopt a three-year “Pilot Program” for remote inspections.

Other key changes are as follows:

• • RSLs must be inspected by the member firm on a periodic schedule, assumed to be at least once every three years.
  • Member firms are responsible for ensuring surveillance and technology tools are suitable for remote locations.
  • Member firms are responsible for conducting and documenting a risk assessment for remote locations.
  • Member firms are responsible for establishing, maintaining, and enforcing written supervisory procedures for remote inspections.
  • Member firms are responsible for keeping written inspection records on file for a minimum of 3 years, or until the next inspection report has been completed.
  • Member firms are responsible for providing the FINRA with quarterly data, disclosing the number of inspections and any related findings.

The Benefits

FINRA anticipates the WFH model to endure, regardless of the state of the pandemic. The shift to remote work prompted significant lifestyle and work habit changes, fostering workplace flexibility.
This shift also led to technological advancements enabling firms to closely monitor broker activity to ensure full compliance at all times.

This approval indicates that the industry has gained the support of regulators to leverage technology for supervisory and surveillance purposes. Additional benefits brought by this change are:

• Workplace flexibility promotes diversity and attracts stronger talent.
• Increased employee satisfaction and retention.
• Elimination of registration costs associated with registering all RSLs as branches.
• Reduction in inspection frequency from annually to every three years.

The SEC approved FINRA’s revisions to Rule 3110 in November 2023 and, in January 2024, FINRA announced the following effective dates: 

• Rule 3110.19 (Residential Supervisory Location) becomes effective on June 1, 2024; and
• Rule 3110.18 (Remote Inspections Pilot Program) becomes effective on July 1, 2024.

Interested in exploring more of our financial services expertise?

Contact us today!

This blog post was co-authored by: Carl Aridas

In a recent blog post, Perficient’s Financial Services Risk and Regulatory Center of Excellence (CoE) highlighted the Federal Deposit Insurance Corporation (FDIC) plan to implement a “Robin Hood-like” deposit insurance premium on the nation’s largest banks to recapitalize the agency’s Deposit Insurance Fund.

Since that blog was published, the FDIC has issued an update on its Restoration Plan for the Deposit Insurance Fund (DIF). The Federal Deposit Insurance Act (FDI Act) requires the FDIC Board to adopt a restoration plan when the DIF’s reserve ratio—the ratio of the fund balance relative to insured deposits—falls below 1.35 percent.

READ MORE: Decoding SVB’s Failure & FDIC’s Special Assessment

In a focused review of the last few years, on September 15, 2020, the FDIC established the Restoration Plan to restore the DIF reserve ratio to at least 1.35 percent by the statutory deadline of September 30, 2028. This action became necessary due to extraordinary deposit growth during the first half of 2020, causing the DIF’s reserve ratio to dip below 1.35 percent. The Plan retained the assessment rate schedules in place at the time.

On June 21, 2022, based on projections indicating that the reserve ratio was at risk of not reaching the required minimum by the statutory deadline, the FDIC Board amended the Restoration Plan. However, a year later, the FDIC projected that the DIF reserve is likely to reach 1.35 percent by September 30, 2028.

In conjunction with the Amended Restoration Plan, the FDIC Board increased deposit insurance assessment rates by 2 basis points for all insured depository institutions, effective in the first quarterly assessment period of 2023.

DIF Balances in 2023

However, despite the increase in insurance premiums, the failures of Silicon Value Bank and other banks led to a decline in the DIF balance. As of June 30, 2023, the DIF balance stood at $117B. Increased loss provisions, including those for the bank failures, combined with robust insured deposit growth, resulted in the reserve ratio from 1.25 percent as of December 31, 2022, to 1.10 percent as of June 30, 2023.

LEARN MORE: Regulatory Risk & Compliance in Financial Services

Despite this decline, the FDIC projects that the reserve ratio is likely to reach the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028. It’s important to note that these projections don’t assume interest rates will remain as high compared to 2023. This also doesn’t account for the concentration of deposits for some of the largest banks dissipated via restructuring, spin-offs, or competing with smaller banks’ interest rates.

Your Financial Services Partner

For more trusted insight and knowledge expertise, we invite you to view our wide array of Financial Services digital solutions.

Our services expertise, blended with our digital leadership across platforms and business needs, equips the largest organizations to solve complex challenges and compliantly drive growth.

Contact us today!

The Consumer Financial Protection Bureau (CFPB) has narrowed its focus on what it terms “junk fees” targeting financial industry practices.

Understanding the CFPB’s recurrent theme and deciphering its message from the recent press releases provides insights into potential enforcement actions over the next 12-24 months and how banks can reassess their current fee structures.

Failure to understand the prevailing wind risks running counter to the CFPB’s current focus.

The CFPB’s Problem with Junk Fees

Recently, a regional bank headquartered in Richmond, VA faced a hefty $6.2 million fine for alleged illegal overdraft fee harvesting. CFPB Director Rohit Chopra stated, “Americans are fed up with junk fee scams and the CFPB will continue its work to ensure families are treated fairly”.

The term “junk fee” has appeared in no fewer than 10 press releases in 2023 alone, signaling a broader concern for the CFPB.

In January 2022, the CFPB launched a press release soliciting public feedback on four specific concerns:

• Fees for things people believed were covered by the baseline price.
• Unexpected fees for a product or service.
• Fees that seemed too high for the purported service.
• Fees where it was unclear why they were charged.

Starting in June 2023, the CFPB released several other press releases further criticizing practices they deemed inappropriate. These culminated in an advisory opinion paper where the CFPB illuminated the fact that “…many large banks erect obstacle courses and impose junk fees to answer basic questions.”
A cursory reading elicits the obvious question: Is this a genuine attempt to protect consumers, or is it a strategic move to redefine industry norms?

Guidance to Halt Large Banks

The CFPB’s issuance of guidance to curb large banks from charging illegal junk fees for basic customer service points to a regulatory stance that goes beyond isolated incidents. The choice of words implies a proactive measure, suggesting that the CFPB is steering the industry away from what it considers questionable practices.

Examining Illegal Junk Fees Across Industries

In their October 11th press release, the CFPB shared that examinations have resulted in the return of $140 million to consumers affected by illegal junk fees in banking, auto loans, and remittances. This significant sum underscores that junk fees are not isolated incidents but a systemic concern that requires industry-wide attention.

Questionable Practices – Looking Ahead

The regulatory spotlight has uncovered potentially illegal junk fees in various financial products. While the CFPB positions itself as a consumer protector, the exposed practices raise questions about whether the financial industry is genuinely plagued by issues or if it’s becoming a target for regulatory reform from a partisan agency, not under congressional oversight.

Regardless of the motivation, the CFPB’s recent actions serve as a warning to banks to proactively scrutinize their fee structures.

Junk fees are a central theme, and financial institutions should note it as a leading indicator of regulatory scrutiny. Now is the time for banks to evaluate and eliminate fees that may attract the CFPB’s attention in the evolving financial landscape.

Perficient’s Deep Expertise Can Help

In navigating these uncharted waters, Perficient has experts with decades of experience working for the most successful and compliant banks in the world. We specialize in not only thought leadership but also practical experience helping regional banks and credit unions seeking to understand and rectify potential “junk fees” in their fee structures. With profound expertise in the financial services sector, we can assist banks in identifying and addressing these areas of concern, ensuring compliance, and bolstering customer trust.

Learn More: Perficient’s Financial Services Solutions

As the CFPB intensifies its focus on “junk fees,” the financial industry must adapt and respond. This isn’t just a call for compliance; it’s an opportunity for banks to redefine their practices, fostering transparency and fairness.

Collaborating with Perficient enables financial institutions to take a proactive approach to tackling the issue of “junk fees” and other regulatory challenges. This partnership not only helps avoid regulatory scrutiny but also positions them as advocates for customer well-being in the continually changing financial landscape.

Connect with Perficient today to elevate your business practices.

This blog post was co-authored by: Connor Opalka 

Bank Compliance Executives can rest easier at night knowing they receive insights from Perficient’s Financial Services Risk and Regulatory Center of Excellence (CoE).   

In this article, we highlight the key emerging industry compliance risks as they were outlined by the Office of the Comptroller of the Currency’s (OCC) National Risk Committee in their recently released Semiannual Risk Perspective.  

 Navigating AML and OFAC Compliance Risks 

Regarding anti-money laundering (AML) and Office of Foreign Assets Control (OFAC) compliance risks, bank executives must navigate operational and compliance challenges tied to fintech relationships.  

• Manage third-party risks, especially for relationships involving higher-risk or critical activities. 
• Contracts should explicitly address potential default and termination.
• Identify nested relationships where fintech firms serve other fintech firms.  

 Adapting to the New Payment Landscape 

As new payment methods continue to emerge, such as FedNow’s instant payments, it’s important that banks continuously evaluate their BSA/AML risks and corresponding controls to keep pace with new or changing risk profiles.  

While the digital landscape continues to expand, another risk banks need to be wary of is scams. An emerging scam known as “pig butchering” was recently flagged by the Financial Crimes Enforcement Network (FinCEN). This particular scam involves criminals building trust with victims in digital relationships before persuading them to invest in cryptocurrency platforms, ultimately leading to financial losses.  

Other, traditional financial crime risks, especially fraud, continue to demand banks’ vigilance. Significant increases in Suspicious Activity Reports (SAR) filings related to fraud highlight the importance of effective processes to prevent, identify, and file SARs within a timely manner. Banks must uphold responsibilities under the current Customer Due Diligence and Beneficial Ownership Rule and the other existing BSA requirements. *    

*Note that the AML Act of 2020 requires the issuance of changes to the Customer Due Diligence and Beneficial Ownership Rule. Once published by regulators, Perficient’s Risk and Regulatory CoE will be here to walk our clients through the changes. 

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Modernizing CRA Regulations 

Managing compliance risk frameworks in alignment with existing risk profiles is crucial as customer needs evolve. As for rising interest rates, banks may experience an increase in relief requests under the Servicemembers Civil Relief Act, particularly for adjustable-rate credit products. Additionally, the recent rule by the OCC, the Federal Reserve, and the FDIC strengthens and modernizes Community Reinvestment Act (CRA) regulations.  

The effective date of the new rule is April 1, 2024, with key provisions taking effect on January 1, 2026, and January 1, 2027. Banks need to plan for these changes and begin to implement management processes to address the potential impact of the rule on their systems and resources. 

Your Expert Partner 

Perficient’s Financial Services Risk and Regulatory CoE will continue updating our audience with more upcoming articles dissecting the 1,400+ page CRA.  

Contact us today to discuss in depth how we can help tackle your business challenges. We also invite you to explore our financial services solutions and expertise.  

LEARN MORE: Regulatory Risk & Compliance in Financial Services