How to Best Respond to Regulatory Inquiries

Operating a financial institution includes a number of responsibilities related to transparency and keeping everything  above board. From time to time there are regulatory and law enforcement inquiries that are meant to keep banks in check and make sure the consumer is not being taken advantage of.

International banks have been slammed recently for being greedy and putting personal interests above customer needs. This has caused major fallout in terms of customer trust in banks as well as big fines from regulators. To avoid major liabilities, banks need to know the importance of how to respond to regulatory inquiries, including speed and accuracy of responses.

Different Regulatory Inquiries

In the United States, there are several ways financial institutions can undergo an inquiry by an outside agency. They are:

  • Law enforcement subpoenas: Local, state and federal investigators can request information by banks at any time.
  • Regulatory requests: Related to a prior or upcoming exam of a financial institutions, these requests focus on the need for data on larger industry trends, gaps or patterns.
  • Patriot Act: This avenue allows federal investigators to inquire about a broad array of issues in the banking sector. Law enforcement will follow up after a red flag with a formal subpoena.

Responding to Requests

There are a number of things banks need to do in the event of a regulatory inquiry. One thing to do is to make sure you are financially insured by an insurance provider. With major data breaches at the top of the discussions, having first-party cyber coverage from a bank cyber insurance provider is a good place to start. Bank cyber insurance will keep financial institutions safeguarded from major legal fees attributed to dealing with inquiries.

Another thing to do is to not take these inquiries lightly. Regulators are already operating with the latest information related to how the best and worst bank compliance programs work for any size of bank. They’ll take your responses and compare them with the already-known information they have on hand to look for variance in data quality or inconsistencies. If there is anything out of the ordinary, regulators will be implored to question why things don’t line up. It’s in your best interest to provide the requested information and data at their utmost transparency.

Admitting you’ve made a mistake is tough, but it is the only course of action to take when responding to requests. If regulators have to follow up on your responses with further investigation, only to find more discrepancies, this will spell legal trouble for your bank. Regulators will be looking to see if you are hiding something in your responses, but take heart knowing that if something is hidden, it will eventually be discovered.

Also, regulators do keep things on a timer when it comes to your responses. Banks need to consider the timing of the request and be sure to turn answers in sooner rather than later. Banks need to make sure they are protecting their reputation and future business through a mixture of adequate and timely responses and bank cyber insurance that can provide the right financial assistance needed.

Keeping things honest and thorough will help to alleviate major damage to your bank’s own pocketbook. The goal of regulatory inquiries should be to help banks with improving efficiency, effectiveness and keep dishonest activities out.


About Financial Guaranty Insurance Brokers

Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for entities of all types. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (877) 485-4413 to speak with one of our professionals.