The Federal Financial Institutions Examination Council (FFIEC) agencies issued a proposed rule updating the Uniform Consumer Compliance Rating System. This System has been in place since 1980.
No action is required on the part of the credit union, as this is currently a proposed amendment, and if enacted, would not institute new supervisory expectations.
The FFIEC will accept comments on the proposal for 60 days.
The proposed revisions were not developed with the intention of setting new or higher supervisory expectations for financial institutions, and their adoption will not require additional regulatory burden. The NCUA will consider rating within the context of the existing CAMEL rating structure and will not institute a separate compliance rating. The NCUA stressed that there will not be new supervisory expectations from these changes.
The proposed revisions emphasize the importance of institutions’ compliance management systems (CMS), in particular, risk control processes designed to manage consumer compliance risk which are needed to support compliance and prevent consumer harm. The CC Rating System has provided a general framework for evaluating compliance factors in order to assign a consumer compliance rating to each federally regulated financial institution.
When the current CC Rating System was adopted in 1980, examinations focused more on transaction testing for regulatory compliance rather than evaluating the sufficiency of an institution’s CMS to ensure compliance with regulatory requirements and to prevent consumer harm. In the intervening years, each of the FFIEC Agencies has adopted a risk-based consumer compliance examination approach to promote strong compliance risk management practices and consumer protection within supervised financial institutions. Risk-based consumer compliance supervision evaluates whether an institution’s CMS effectively manages the compliance risk in the products and services offered to its customers. Under risk-based supervision, examiners tailor supervisory activities to the size, complexity, and risk profile of each institution and adjust these activities over time. While compliance management programs vary based on the size, complexity, and risk profile of supervised institutions, all institutions should maintain an effective CMS. The sophistication and formality of the CMS typically will increase commensurate with the size, complexity, and risk profile of the entity.
In developing the revised CC Rating System, the Agencies believe it is also important for the new rating system to establish incentives for institutions to promote consumer protection by preventing, self-identifying, and addressing compliance issues in a proactive manner. The proposed rating system would also create a framework for the Agencies to recognize institutions that consistently adopt these compliance strategies.
Another benefit of the proposed CC Rating System is to promote coordination, communication, and consistency among the Agencies, consistent with the Agencies’ respective supervisory authorities. Pursuant to the proposal, each of the Agencies would use the same CC Rating System to assign a consumer compliance rating to all supervised institutions, including banks and non-banks.
