Highlights:
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The key purpose of the classification system in the Compliance Report of
Examination is to effectively communicate to the institution the level of
severity of the violations cited so that the institution can appropriately
prioritize efforts to address identified issues.
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Level 3/High Severity violations include violations that may result in
restitution to consumers in excess of $10,000 and pattern and practice
violations of anti-discrimination laws.
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Level 2/Medium Severity violations include violations resulting in potential
restitution to consumers in an amount below the Level 3 threshold and other
systemic or recurring violations.
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Level 1/Low Severity violations involve isolated or sporadic violations.
Level 1 violations that are adequately addressed during the examination and
that do not indicate weakness in the compliance management system will not
be included in the Report of Examination.
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The new classification system will become effective for examinations started
on or after October 1, 2012.
Distribution:
FDIC-Supervised Institutions
Suggested Routing:
Chief Executive Officer
Compliance Officer
Chief Lending Officer
General Counsel
Attachment:
New Classification System for Citing Violations in Reports of
Examination
Contact:
Sylvia Plunkett, Senior Deputy Director, at (202) 898-6929 or SPlunkett@fdic.gov
Note:
FDIC Financial Institution Letters (FILs) may be accessed from the FDIC's Web
site at www.fdic.gov/news/news/financial/2012/index.html.
To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies may be obtained through the FDIC's Public Information Center, 3501
Fairfax Drive, E-1002, Arlington, VA 22226 (877-275-3342 or 703-562-2200).
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New Classification System for Citing
Violations in Reports of Examination
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FIL-41-2012
September 25, 2012
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Background: The violations pages in the Compliance
Report of Examination serve as the institution's official record of violations
identified during an examination. Because different types of violations present
different levels of risk to consumers and to institutions, a method of
classifying violations is necessary to communicate the FDIC's level of concern
regarding the violations identified. The FDIC has developed a new system of
classifying violations that replaces the previous two-level system, which
designated violations as "Significant" or "Other."
New
Classification System: The new classification of
compliance violations is a three-level system that provides greater clarity to
the institution regarding the severity of the violation. The three categories
for violations are:
- Level 3/High Severity: Violations that have resulted
in significant harm to consumers or members of a community. These
violations typically result in a request or a requirement that the
institution provide restitution in excess of $10,000 (in aggregate), and
also include any pattern or practice violations of anti-discrimination
provisions, including redlining or widespread discouragement.
- Level 2/Medium Severity: Violations reflecting
systemic, recurring, or repetitive errors that represent a failure of
the bank to meet a key purpose of the underlying regulation or statute.
These violations may have had a small, but negative, impact on consumers
or have the potential to have a negative impact if uncorrected. Level
2/Medium Severity violations may also include those resulting in
potential restitution in an amount below the Level 3 threshold.
- Level 1/Low Severity: Violations that are isolated or
sporadic, or systemic violations that are unlikely to affect consumers
or the underlying purposes of the regulation or statute. These
violations are typically due to individual instances of failure to
follow established procedures or minor errors in the implementation of
reasonable procedures to meet obligations of the regulation or statute.
Report of Examination Treatment: Level 3/High
Severity or Level 2/Medium Severity violations will be described in the Report
of Examination under distinct headers, with Level 3 Violations appearing first
on the violations pages. The discussion of these violations will include
institution management's response to each violation. Level 1/Low Severity
violations will be listed with a blanket statement indicating management's
actions or intentions to address the noted violations. Level 1 violations that
are adequately addressed during the examination and that do not indicate
weakness in the compliance management system will not be listed in the Report of
Examination.
With this new classification system and its presentation in the Report of
Examination, the FDIC seeks to address concerns raised by the industry in
post-examination surveys and during regulatory outreach events about the focus
and portrayal of violations within the context of the examination findings.
Institution management should find the new approach helpful as they strive to
focus on areas of greatest concern and take prompt and appropriate corrective
action.
Effective Date: The new violation classification
system will become effective for all examinations started on or after October 1,
2012.
Mark Pearce
Director
Division of Depositor and Consumer Protection
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