By Sharon Geiger, Senior Quality Control and Review Specialist
Flood certifications, coverage, insurance, and placement – these are common in any financial institution’s compliance vocabulary nowadays. It’s no secret that all regulatory agencies have had “flood” as a hot topic for the past few review cycles. Financial institutions have been reinforcing their knowledge and awareness of the issue. Yet, even with all of the training that banks and credit unions have paid for and had their employees attend, why are financial institutions still receiving flood violations?
Unfortunately, there are more than a few ways to violate the flood hazard requirements, such as:
These errors and other violations are continuing to serve as the basis for regulators to impose civil money penalties.
The following illustrates the continuing scrutiny regarding flood and its importance to the regulators. The Federal Deposit Insurance Corporation (“FDIC”) assessed civil money penalties against several banks for violating the Flood Disaster Protection Act (“FDPA”) and the National Flood Insurance Act (“NFIA”) over the course of 2018. The violations included the following:
The following is a short list of violation examples:
The violations cited in the enforcement actions do not involve a great deal of loans. For example, Southwest Capital Bank in New Mexico had a total of 12 violations, even though one does not usually look for flood violations in the southwest region of the country. This reinforces the point that the FDIC, as well as other regulatory agencies, are closely monitoring compliance with the FDPA and the NFIA, and absolutely no financial institution in any state – even one that is mostly desert – is exempt from regulatory scrutiny.
In all of these cases, the monetary penalties are high when compared to the number of violations found. In order to avoid “the FDIC list,” there are a few simple things that you can do to provide low risk/high reward:
Although your financial institution may have adequate controls in place, if the controls are not consistently followed and one or two loans fall through the cracks, violations and monetary penalties will be assessed should the regulators identify them before you do.
While larger financial institutions may outsource these functions to third parties (e.g., monitoring of expiring flood insurance policies, sending required notices, enforcing force-placed flood insurance, monitoring changes in flood maps, etc.), smaller community banks do not have the same volume of loans located within flood zones and usually resort to manual monitoring of these processes. And, of course, when you have a manual process in place, you are more susceptible to human error and data entry mistakes. However, smaller financial institutions can avoid these mistakes through a robust compliance program, training, and regular internal audits.
When the steps above are followed, your bank will be in a much better position to avoid costly violations.
To learn about acxell's Internal Audit and Risk Management Services and how we can help your institution, email WhatsYourRisk@acxellrms.com or call 877-651-1700.
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