WASHINGTON – Financial regulators are proposing changes to their standards for evaluating institutions' compliance with consumer protection rules to account for the evolution in supervisory approaches since the standards were adopted in 1980.
The Federal Financial Institutions Examination Council on Friday proposed modifications to its Uniform Interagency Consumer Compliance Rating System (known as the CC Rating System) to reflect broad changes to supervision that have taken place since the system was adopted more than 35 years ago.
"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 [compliance management system] to ensure compliance with regulatory requirements and to prevent consumer harm," the notice said. "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."
The comment period for the proposed changes will be open for 60 days.
The CC Rating System is applied across financial institutions and is comprised of a grade ranging from 1 to 5, with 1 representing the lowest risk of consumer harm to 5, which represents the highest risk. The grades help regulators focus their attention on institutions with a greater likelihood of running afoul of consumer protection rules and laws.
The revised rating system would retain the 1-to-5 scale, but would reflect important changes in supervisory approaches, including considering the risk profile of the individual institution rather than applying the same standards to all institutions irrespective of their size or complexity. The new system should also reward proactive compliance systems and incentivize poor systems to improve.
"The first principle discussed within the CC Rating System conveys that the system is risk-based to recognize and communicate clearly that compliance management programs vary based on the size, complexity, and risk profile of supervised institutions," the notice says. "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 FFIEC is made up of representatives of the Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Consumer Financial Protection Bureau, National Credit Union Administration and state regulators.