FDIC Clarifies Self-Identification of Violations Must Be from Proactive Discovery

The FDIC recently updated its Consumer Compliance Examination Manual to, among other things, clarify that a self-identified violation, which generally will not be listed as a violation after an examination, must be proactively discovered by the institution.

FDIC examiners conducting consumer compliance examinations generally will not cite violations that are self-identified and corrected before the examination begins if the root cause was found and corrective action, including any remediation, was taken to reasonably assure the violation will not occur again.  The recent update clarifies that violations are considered self-identified when found by proactive detection through an effective compliance management system (CMS).  In contrast, a violation will not be considered self-identified if the violation was found through other sources, such as, (i) any regulatory supervisory activity; (ii) findings of other examinations/examiners; (iii) litigation; or (iv) any other notice that was outside of the institution’s CMS system.

The Manual confirms that proactive detection and response to self-identified violations, as described above, based on an effective CMS is considered a strength of the CMS.  And, while not considered a strength of a CMS or self-identified, quickly addressing issues found by other sources will be considered positively.