Following up on Part 1 – Examinations, more challenging examinations this year are leading to an uptick of enforcement actions, and banks should be prepared accordingly. Here are a few of the things we’ve been discussing with banks threatened with a proposed enforcement action:

Negotiate Provisions. Proposed enforcement actions should be negotiated to ensure that provisions are consistent with examination findings, and contain corrective actions with reasonably achievable timeframes. Although we’ve found that regulators are averse to negotiating certain provisions in enforcement actions, there are many provisions that can be tightened or corrected. We have been successful helping our clients rightsize proposed enforcement actions to their bank’s unique circumstances, extend due dates for deliverables, and negotiate formal agreements into confidential informal actions.

Notification Requirements. It’s important to inventory agreements with third parties, such as insurance providers, to ensure appropriate and timely notifications of enforcement actions, consistent with restrictions on disclosing confidential supervisory information.

Public Relations and Liquidity Contingencies. Banks that anticipate receiving a public enforcement action should be prepared for adverse reactions from customers and other stakeholders. They should develop an internal and external public relations strategy, as well as a liquidity contingency plan, that can be deployed when the enforcement action becomes public.

When navigating this new examination and enforcement environment, banks should remember lessons learned from previous banking crises. We frequently discuss with our clients relevant provisions from recent public enforcement actions to see whether they should be incorporating elements of those requirements, like those involving enhanced risk monitoring, into their operations. Being attentive to regulatory trends and being proactive when faced with enhanced regulatory scrutiny can lead to more successful outcomes. We can help banks facing enforcement actions take appropriate steps to manage their potential consequences.

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