Dealing With Regulatory Enforcement Actions

Dealing With Regulatory Enforcement Actions

As the effects of the recession that started in 2007 continue to linger, more financial institutions are showing the strain with deteriorating balance sheets and income statements. At the same time, regulatory agencies, responding to current conditions and, to some extent, public criticism and congressional scrutiny, have started taking a harder line on ratings and evaluations, leading to an increase in enforcement actions.

The number of formal enforcement actions (defined as those that are a matter of public record and are indicative of the most severe problems) issued by the banking regulators started to climb in 2008 and has continued increasing in 2009. In fact, the number of formal actions this year is on pace to be almost double the number in 2008 and more than four times the number in 2007. Moreover, for every formal enforcement action, there are many more informal enforcement actions that impose similar requirements on financial institutions.


Dealing with an enforcement action, whether it is formal or informal, is costly and time-consuming. The prescriptive actions and tight time frames usually require an institution to divert scarce internal resources to deal with required actions. In addition, outside expertise in the form of legal counsel, consultants or temporary staff often must be engaged to respond to an action’s requirements. Also, banks under enforcement actions face additional scrutiny in the form of more frequent examinations, expanded examination scopes and additional regulatory reporting. In the case of formal enforcement actions, there is also a potential loss of goodwill, confidence and reputation with customers and the general public.

Challenges and Opportunities

The best way to deal with enforcement actions is to avoid them altogether through actively involved and informed board members and senior management and a forward-looking and comprehensive risk management program. In reality, this often is easier said than done, especially in challenging banking conditions.

Regulators do not impose enforcement actions without cause, though the degree of a cited problem and/or proposed corrective action may be debatable. An enforcement action, or even discussion of one, means that a financial institution must make significant changes to risk management processes and procedures in a quick and decisive manner.

Our Point of View

For a financial institution facing an enforcement action, taking the following actions will help make the process as productive as possible and minimize the inevitable time and expense involved:

  • At the earliest sign that a regulator is considering an enforcement action, start an open dialogue with the regulator to clarify the issues and address concerns.
  • The provisions, time frames, and even the type of action usually are open to discussion and negotiation, and should be discussed honestly with the regulator to ensure that provisions address the problem(s), are reasonable and provide achievable time frames.
  • A detailed action plan should be developed as early as possible with measurable steps, firm deadlines, and explicit accountability and ownership in the bank.
  • After an action is in place, all deadlines should be met, and submissions, reports and other required information sent to the regulators should be detailed and on point. 
  • There should be regular and ongoing communication to keep the regulator informed of the bank’s progress and also to address any concerns as early as possible.
  • Internally, there needs to be coordinated communication and training to ensure staff support and execution of corrective actions.
  • The bank’s board of directors and senior management must be involved actively and demonstrably throughout the process.

How We Help Companies Succeed

Our Regulatory Risk Consulting practice can help banking organizations facing or already under enforcement actions by:

  • Negotiating with regulators in advance of an action’s execution to ensure the institution’s best interests are being represented
  • Developing a plan for responding to an action that provides the necessary detail, accountability and oversight to meet regulatory expectations
  • Helping prepare the responses and written materials that may be required by an action
  • Crafting a communication plan for ongoing interaction with the regulators
  • Executing independent reviews in response to provisions in a regulatory action, such as management reviews and audits
  • Designing and conducting training in support of new policies, procedures and processes

Our Regulatory Risk Consulting practice helps organizations address the challenges of enforcement actions by providing expert and objective advice at a time of critical need. Our professionals are former regulators and industry executives who have the necessary experience and expertise to assist and guide banking institutions successfully through the difficult and trying experience of being under an enforcement action.


Management of a banking organization, in response to a regulatory enforcement action, worked diligently to address the regulators’ criticisms and concerns, even bringing in local outside resources to assist. At the next examination, management was surprised to learn that the regulators were not satisfied with the bank’s progress. 

At that point, Protiviti’s Regulatory Risk Consulting team was engaged to assist management with its remediation efforts and preparation for the bank’s next regulatory review. Our team worked with management to ensure that all of the regulators’ concerns were addressed appropriately and, very importantly, to document the bank’s efforts in a way that clearly explained the changes and progress that had been made. At the next regulatory review, the regulators acknowledged the progress that had been made.

Content Contributed by:

Carol Beaumier
[email protected]
John Atkinson
[email protected]

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