The Rising Importance of a Robust Compliance Management System for State and Federal Examinations

According to an article by the Hudson Cook firm, the Consumer Financial Protection Bureau (CFPB) requires financial institutions, including both depository and non-depository entities, to maintain a robust Compliance Management System (CMS). 

A CMS helps institutions establish, communicate, and enforce federal compliance responsibilities, manage service provider compliance, and implement necessary corrective actions. The article says that effective CMS frameworks include board and management oversight and compliance programs covering policies, procedures, training, audits, and complaint management. The CFPB routinely requests entities to produce their CMS during supervisory or enforcement examinations.

Recently, state regulators have intensified their oversight, mirroring CFPB’s stringent standards. Many states now require licensees to submit their CMS and other detailed policies on areas like advertising, underwriting, fair lending, IT security, and audits during examinations. What was once a simple state review has become far more exhaustive, often demanding near-complete CMS documentation.

For licensees without a comprehensive CMS, the article notes that state regulators may treat this as a significant compliance deficiency, potentially requiring them to justify their compliance procedures thoroughly. 

Establishing a Compliance Management System under regulatory scrutiny can be costly and time-intensive, and regulators will likely notice rushed implementations. To avoid costly last-minute efforts and regulatory penalties, developing and maintaining a CFPB-compliant CMS is advisable before receiving examination requests. 

With state and federal oversight increasing, compliance teams should consult legal experts to ensure Compliance Management System readiness and alignment with evolving regulatory expectations.