Compliance Blog

When you research a compliance issue, it is very wise to find "the grid."  This is the known universe of law, regulation or guidance that can help you find an answer to your compliance quest.  For example, if you are researching an issue related to periodic statements, the grid would include the following:

• NCUA's Truth in Savings regulation, including all of its appendices. 
• NCUA guidance, such as legal opinion letters, and the Examiner's Guide.
• Regulation E, including all of its appendices. 
• Federal Reserve guidance on Regulation E. 
• The Federal Reserve's Truth in Savings Regulation, and all of its appendices.  While Regulation DD does not  govern credit unions, the information may be useful.
• Any Federal Reserve Guidance  on Regulation DD. Again, while not controlling, it may be useful. 
• In addition, you may want to look for secondary documents.  These could include manuals, trade association rags, such as the NAFCU Compliance Monitor, or compliance-related websites and blogs.  A Google search can help locate these sources.  
• Possibly, a court case could be useful, but this is a rarity. 

Now that you  have the grid, start pouring through the information.  There's a potential issue that you must consider.  You may find that your research takes you off the grid.  There isn't a clear answer to every compliance question.  Regulators do not issue regulations to address every conceivable situation.  And when they do regulate a situation, you'll find that they don't even address every possible outcome.  Like I said, you'll often have a question that is not answered on the grid.

So, what do you do?  Here are some possible solutions.

1. Plow ahead blindly.  Can you do this or that?  There's no answer, so just go ahead and do it.  This solution is very simple, and it does allow processes to move ahead quickly.  However, it doesn't measure the risk of a given situation.   You can use this method and get away with it.  But should a problem pop up (lawsuit, exam finding, etc.), you may have to unwind a decision in a very costly way.
2. Hit the brakes.  Can you do this or that?  There's no answer, so let's shy away from the potential risk. This solution is also simple, and it protects you from risk.  However, it doesn't measure risk, and it may keep you from implementing viable solutions that can help your members and your bottom line.  You'll never get burned using this system.  If you don't cross the street, you won't get hit by a horse and buggy.  But you won't get to the other side either. 
3. Control the risk.  There are a number of ways to do this.  If a given situation has no clear guidance, take a step back and think about risk in a global way.  Could the decision lead to a lawsuit?  Member complaints?  Disrupt operations?  Affect liquidity risk?  Reputation?  Strategic risk?  Does the decision merit a legal opinion from an attorney?  What does your examiner think?  Your Regional Director?  Should you call someone at NCUA's General Counsel's office and chat about it?  Or hire an attorney to do any or all of the above?  Can you purchase insurance to protect you if the decision leads to problems?  Have other credit unions gone down this path?  What happened?  This solution is not simple, but it does measure risk and allow management to make an informed decision.  Knowing the risk, management will be better able to price the product, limit concentration risk, think about alternatives, etc.  

Which is the best solution?  That's a (3) business (3) decision (3) for your (3) credit union.  Only (3) you'll know what's (3) best.  Living off the grid can be disconcerting.  But once you have a methodology for handling those situations, you will learn to live with the uncertainty.

***

BSA. Here's a BSA quiz from Rob Rutkowski.

Yabba dabba.  I'll be speaking at NAFCU's Annual Conference in Chicago.  The conference runs July 20-24.  If you are in the area and want to grab coffee or some other type of beverage, let me know.  While my schedule is generally packed during annual conference, I do have some time to meet with compliance peeps.

Mark your calendar/shameless plug.   Here are two future webcasts that might be of interest.  On June 2, I'll moderate a webcast with NCUA's Wendy Angus.  She's the Director of Risk Management at NCUA, and she'll talk about NCUA's risk management expectations, among other things.   On July 14, Sarah Loats, Steve Van Beek and I will deliver a 2 hour webcast that will address the new changes to the BSA manual, as well as the 2 final provision of the Credit CARD Act that will go into affect on August 22, 2010.