Regulatory: The board’s role in consumer financial services compliance

The post-Dodd-Frank era brings renewed focus and accountability on leadership.

This column is part of a series of articles on the new Consumer Financial Protection Bureau and the upcoming wave of regulations affecting the consumer financial industry.

With all of the changes underway in the regulation of the consumer financial services industry, not to mention all of those that are expected and can be predicted, it will be increasingly important in the post-Dodd-Frank era to keep a sharp focus on one key area of compliance: the board and management. Read the Dodd-Frank Act and the regulations it has spawned. Listen to the regulators from the Consumer Financial Protection Bureau and the other stalwart regulators. One of the hallmarks of the new world order will be accountability.

The Bureau looks at some very specific things in terms of oversight. Any consumer financial services enterprise, whether subject to supervision or not, should take note of the factors listed below that the Bureau has determined to be critical when it comes to providing proper oversight by a board or other key leadership and management.

Version 1.0 expressly provides that leadership and management must have:

The last factor, reporting, is the lynchpin for success in the entire oversight process. Poor reporting procedures and systems will undermine even the most generous allocation of resources to compliance. Here are three quick and elementary tips to help ensure your board gets the compliance information it needs and, most importantly, reads the reports.

  1. First, reports addressing compliance-related issues need to be written for the right audience. It is critical that writers understand the predisposition of their readers and give them the appropriate level of detail. If the board understands the underlying regulations, do not waste time belaboring those sorts of details. Conversely, if leadership does not know the regulations, it is incumbent upon the writer to educate them. If having the ability to drill down on data is essential to effectively analyze or understand the communicated conclusion, provide the data. If not, don’t.
  2. Second, report formats should be tailored to the audience. Does the board prefer hard copies or electronic documents? Does management want charts or narratives? The goal is to have leadership read the compliance reports they are given. The more readable the report, the more likely it is going to get read.
  3. Finally, get leadership to buy in and support key risk and performance indicators. When setting up a new or modifying an existing reporting system, get the support of the executive team. Provide them with options on how they receive data under the risk and performance indicators. Among many other benefits, it helps set their expectations.

These concepts, basic as they may be, can help compliance, legal, management and the board stay focused and informed as the regulatory environment in the consumer financial services industry grapples with a new consumer-centric regulator determined to hold leadership accountable for compliance failures.

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Martin Bishop

Martin J. Bishop is a partner, litigation department vice chairman and co-chair of the consumer financial services litigation practice at Foley & Lardner LLP. He...

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