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Issues : Legal

How to Win the Regulators’ Approval

August 24th, 2012 |

As banks are expected to follow more strenuous regulations and requirements, one thing that can help ease the load on the board is having a good relationship with the regulators. There are simple ways directors can improve in this area, and as with most relationships, it comes down to two main principles: communication and engagement. 

What steps should bank boards be taking to ensure that they maintain a good working relationship with the regulators?

Ralph-Sharpe.jpgTransparency, honesty and timeliness are essential; never hide or sugarcoat bad news. Provide realistic projections—better to understate and over-perform. Be engaged; welcome opportunities to meet with examiners—with or without management, and in and out of board meetings. Ask questions, and listen to the answers. If you disagree, do so respectfully.

Stay informed and keep up with regulatory developments. Read the Office of the Comptroller of the Currency’s Director’s Book (available online) and attend regulator outreach sessions when offered. Assign a regulatory liaison to ensure timely and complete responses are provided to examiners for things such as Matters Requiring Attention (MRAs), but don’t bury examiners in paperwork.

Finally, learn the business of your bank. Know the difference between being a director instead of an investor.

—Ralph Sharpe, Venable

geiringer.jpgAs a former regulator, I find that I sometimes need to remind directors that examiners are people too, and that how they are treated during examinations can directly impact your bank’s ratings. Directors need to set the “tone at the top” that everyone at the bank should treat examiners with courtesy and respect, take seriously any reasonable suggestions that they make, and handle any disagreements with as much civility as possible under the circumstances.

Directors themselves can build better relations with regulators by sending representatives to key meetings with examiners and occasionally requesting executive sessions with them to discuss issues outside the presence of management. Of course the best way for a bank board to maintain a good working relationship with regulators is to oversee a safe and sound bank.

—John Geiringer, Barack Ferrazzano

Cliff-Stanford.jpgMeetings with regulators, such as exit meetings, are crucial opportunities to listen and to seek clarification of points raised by the regulators. This does not mean that directors should be passive or should not register concerns or objections to factual inaccuracies. However, arguing and cementing a position on a “judgment call” issue during a meeting with examiners can often lead the examiners to cement their own in return, hurting the chances that directors can influence the perception of the bank’s performance.

Remember the placard from the British Government during World War II-- “keep calm and carry on.” Examiners will have findings, sometimes in the form of Matters Requiring Attention by the Board, but often there are simple (not necessarily easy) steps to be taken. Directors will show much good faith and earn credibility with examiners by concerted engagement to drive management to address key regulatory concerns promptly.

Finally, remember that regulators have bosses and careers, and operate in a fast-moving regulatory environment just as banks do. Directors that show an appreciation for the challenges faced by regulators will create a store of goodwill that can only help their bank.

—Cliff Stanford, Alston & Bird

Angelee-Harris.jpgBuild your own communication lines with regulators. Rather than relying solely on management to maintain primary contact with regulators, authorize your chairman, audit committee head and perhaps your compensation committee chairman to meet face-to-face with primary regulatory contacts. After that, be sure to maintain consistent communication on behalf of the board.

Be honest with regulators and seek their guidance. When regulatory issues occur, alert regulators early and disclose all known facts—no matter how negative. There is oftentimes a tendency to downplay negative details or dribble out full details over time. These actions erode a regulator’s trust. Instead, talk early and often to regulators. Admit when you need to get back to them with more facts. Do not assert facts you cannot support. Regulators are a key resource, so be open to ask them for advice and guidance.

Try to see issues from a regulatory viewpoint. Like banks, regulators work in an environment of heightened scrutiny and could be called to task for failure to conduct full diligence or take proper action. Anticipating and offering to provide the proper access and information a regulator needs to fulfill her duties will go a long way to maintaining good regulatory working relationships.

—Angelee Harris, Manatt Phelps & Phillips

kweaver

Kelsey Weaver is the Publisher for Bank Directoran information resource for directors and officers of financial companies. You can follow her on Twitter at twitter.com/kelsey8762 or get connected on LinkedIn.