You’ve likely heard of the Federal Deposit Insurance Corporation Improvement Act, or FDICIA, a time or two, since most bankers are aware of the significance of crossing the $1 billion asset threshold. While most banks are aware of FDICIA, many don’t fully understand the whole process that goes into being compliant.
FDICIA compliance requirements should be on your radar long before you reach the $1 billion mark because you will likely need a much more sophisticated risk management structure inside your organization. This includes having in place not only the appropriate personnel and resources but also effective processes and procedures and accurate documentation. While there is a lot to consider, it is also important to keep in mind that you are not alone and that the responsibilities of FDICIA compliance can, and should, be segregated for efficiency.
- Management should be responsible for filing the actual report as well as designing, implementing and maintaining a solid internal control structure and procedures for the reporting process.
- The internal audit group should work to complete a risk assessment and then develop an audit plan and program for each of the key areas identified. Internal audit should coordinate or perform all testing and report findings to management, the board and the audit committee.
- The Bank’s board and audit committee should exercise their own judgment in evaluating management’s FDICIA competence — which will result in engaging an external firm to express an opinion on the entity’s internal controls over financial reporting.
With duties and responsibilities split between different departments and personnel inside the bank, the compliance process becomes less daunting and realistically much more manageable.
Many times, due to lack of preparation, banks fall victim to a variety of the most common pitfalls in the compliance process. These can include underestimating the time it really takes to become FDICIA compliant, not properly documenting activities or not adequately educating the management team about FDICIA to begin with. Many of these are evident throughout the first year, since the bank has not properly learned how to best approach FDICIA compliance. After year one, however, this tends to dissipate as the process becomes more fluid and familiar.
Over the years, we’ve seen many banks find themselves on the cusp of the asset threshold (often as a result of an acquisition) only to discover they are woefully unprepared for FDICIA compliance. It may seem like a stressful and difficult practice, and it will take time to perfect, but educating yourself and your employees about FDICIA and keeping up with a well-communicated plan well in advance of when you think you will get to the $1 billion threshold will help the regulatory process go as smoothly as possible. For more information on FDICIA readiness or to access our FDICIA readiness checklist, please contact your relationship executive or Sonny MacArthur at email@example.com.