Patent Publication Number: US-8543444-B2

Title: Method and system for assessing compliance risk of regulated institutions

Description:
FIELD OF THE INVENTION 
     The present disclosure relates methods for assessing and managing risk in a financial institution associated with compliance. In particular, this disclosure relates to assessing and managing risk for an institution to be compliant with a set of regulations, and providing policies and procedures to follow to achieve or maintain compliance, including providing notifications to the institution. 
     BACKGROUND OF THE INVENTION 
     In recent years, various institutions and other organizations have experienced heightened regulatory scrutiny, negative media attention, reputational damage, legal liability, and other sanctions for violations of compliance obligations. This, in turn, has given rise to an increased attention by regulators and the corresponding regulated institutions on the role of compliance. In addition, regulators have required these institutions to increase the amount of resources they devote to compliance risk management. 
     Compliance risk management has become more challenging as the number of compliance obligations has proliferated. For example, in the financial industry, regulations have expanded and increased the number of compliance obligations. Examples of proliferating regulators in the financial industry include the Anti-Money Laundering and Counter-Terrorist Financing Obligations of the USA PATRIOT ACT, the Bank Secrecy Act, and the Right to Financial Privacy Act. This has led to a number of regulated institutions employing a number of employees dedicated to ensuring that the institution is compliant with regulations. Conversely, some institutions choose to pay outside providers for assistance with compliance, incurring substantial costs in the process. For smaller institutions, such as many locally owned and operated small businesses, the time and expense necessary to employ full-time compliance personnel or hire an outside provider and keep up-to-date with regulations can be staggering. Even for larger businesses that may be able to afford employing full-time compliance personnel, the amount of work necessary to maintain compliance can be staggering without additional assistance. 
     Institutions have a need to better and more systematically manage their compliance obligations. This has proven difficult, as demonstrated by the large number of enforcement actions that have been brought in recent years against institutions and other organizations for failure to manage compliance risk. Current methods of managing compliance risk relate to using questionnaires and/or databases to summarize and assess risk based on information provided by the institution. This process makes it difficult for an institution to properly assess risk and, once risk is assessed, not only make changes to become compliant but to also ensure that the institution stays compliant and facilitates regulator visits. Other current methods of managing compliance risk relate to having onsite personnel review documents, policies, and procedures by using checklists and developing recommendation reports. Such a process is difficult for many institutions to implement, due to the expense and logistics involved with accommodating onsite personnel. These processes also suffer from a lack of communication and involvement with the institution itself. 
     What is missing from current approaches to compliance risk management is a method for assessing compliance risk that uses information from both publicly available sources and key employees of the institution to assess risk and also create a plan of policies and procedures for the institution to follow. Thus, a need exists for a system for assessing compliance risk using information from a publicly available source as well as information from a client questionnaire that is separated into role categories and answered by employees with areas of responsibility corresponding to the role categories. 
     SUMMARY OF THE INVENTION 
     Systems and methods for assessing and managing compliance risk of a financial institution are disclosed herein. 
     It is noted initially that, as used herein, the term “institution” can include, for example, a bank (e.g., a national banks or a federal savings bank), a credit union, or any other institution that provides financial services for its clients or members (e.g., trust companies, mortgage loan companies, insurance companies, investment funds, etc.), a pharmaceutical company, a large drug manufacturer, research institutions or laboratories, investment institutions, or any other legal entity that is heavily regulated by a single or by multiple regulatory agencies or authorities. It is also noted that “regulation” refers to any form of regulation or supervision that an institution may be subject to. It can include, for example, governmental regulations (e.g., local, state, or federal) or non-governmental regulations, such as those imposed by a national association or the institution itself. 
     Exemplary embodiments of the present disclosure provide an advantageous feature by which an institution can achieve or maintain compliance with a set of regulations. A risk rating is assessed for an institution based on data obtained from publicly available sources and employee-given response to a questionnaire. Based on the assessed risk, a set of policies and procedures is created for the institution to implement in order to achieve or maintain compliance, and the institution is notified of the required policies and procedures. Media generated when the institution follows the policies and procedures is analyzed to reassess risk and update the necessary policies and procedures to be followed. 
     According to an exemplary embodiment, the present disclosure provides a method of assessing compliance risk of a regulated institution. Data on a plurality of regulated institutions is extracted from publicly available sources and stored in an extracted information database. A client questionnaire is created and separated into a plurality of role categories. A list of employees and a role category that corresponds to their individual area of responsibility is obtained from a client regulated institution. The client questionnaire is distributed to the employees, with each employee receiving questions based on their role category. Their answers are stored in a client questionnaire database. Data on the client regulated institution is located in the extracted information database and stored in the client questionnaire database. Then, based on the answers and data in the client questionnaire database, the risk that the client regulated institution will not be compliant with a set of regulations is assessed. 
     In another exemplary embodiment, the client regulated regulated institution is assigned a risk rating value based on their assessed risk. A set of policies and procedures for the client regulated institution to achieve and/or maintain compliance is generated based on the risk rating value, and stored in a client policy and procedures database. The client regulated institution is notified of any actions it is required to perform based on the set of policies and procedures. Any media generated by the performance of the required actions is stored in a client compliance database, and analyzed for compliance with the set of regulations. The client questionnaire database is updated based on the media stored in the client compliance database, and the risk assessment is preformed again using the updated data. The set of policies and procedures stored in the client policy and procedures database is updated based on the new risk assessment. Additional notifications are provided to the client regulated institution based on the new set of policies and procedures where applicable. 
     These and other features of the present disclosure will be readily appreciated by one of ordinary skill in the art from the following detailed description of various implementations when taken in connection with the accompanying drawings. 
    
    
     
       BRIEF DESCRIPTION OF THE DRAWING FIGURES 
         FIG. 1  is a block diagram illustrating components of a system for assessing compliance risk according to an embodiment of the disclosed system. 
         FIGS. 2 and 3  are block diagrams illustrating alternative embodiments of a system for assessing compliance risk consistent with the present disclosure. 
         FIG. 4  is a flowchart illustrating a method for assessing compliance risk of a regulated institution according to an embodiment of the disclosed system. 
         FIG. 5  is a flowchart illustrating additional features of the method for assessing compliance risk of  FIG. 4  according to an embodiment. 
     
    
    
     Further areas of applicability of the present disclosure will become apparent from the detailed description provided hereinafter. It should be understood that the detailed description of exemplary embodiments are intended for illustration purposes only and are, therefore, not intended to necessarily limit the scope of the disclosure. 
     DETAILED DESCRIPTION 
       FIG. 1  is a block diagram illustrating components of a system  100  for assessing compliance risk according to an embodiment of the disclosed system. The system  100  includes a computer processing device  110 , a plurality of databases  120 , a client institution  130 , and a source of publicly available information  140 . The computer processing device  110 , the client institution  130 , and the publicly available source  140  are each connected via the network  150 . The network  150  can be any suitable network configured to perform the features as disclosed herein. Suitable networks include, but are not limited to, a wide area network (WAN), local area network (LAN), the Internet, wireless network, landline, cable line, fiber-optic line, etc. 
     The computer processing device  110  is implemented in the system  100  for assessing the compliance risk of client institution  130 . The computer processing device  110  is configured to have a communication path to and from the network  150 . Types of communication paths utilized will be apparent to persons having skill in the relevant art(s). The computer processing device  110  is also configured to perform the functions additional functions as described below. The types of processing devices suitable for use as the computer processing device  110  include any device configured to perform the functions as discussed herein and will be apparent to persons having skill in the relevant art(s). For example, the computer processing device  110  can be a personal computer (PC), a server, or a plurality of servers. 
     The computer processing device  110  is connected to a plurality of databases  120 . In  FIG. 1  the connection between the computer processing device  110  and plurality of databases  120  is illustrated as being a serial connection. It will be apparent to persons having skill in the art that the connection can be performed in additional ways. For example, in one embodiment, the computer processing device  110  and plurality of databases  120  are connected through the network  150 . The plurality of databases includes an extracted information database  122 , client questionnaire database  124 , client policy and procedures database  126 , and client compliance database  128 . It will be apparent to persons having skill in the art that these databases can be separate databases, or can all be implemented as a single database, either virtually or physically. Furthermore, the plurality of databases  120 , while being illustrated in  FIG. 1  as being external to computer processing device  110 , can, in alternative embodiments, be implemented within the computer processing device  110 . The type of database used may include a relational database management system (RDBMS). Methods of storing and accessing the information in the database will be apparent to persons having skill in the relevant art(s). For example, a query language can be used (e.g., Standardized Query Language (SQL) or QUEL). 
     The computer processing device  110  is configured to communicate with the publicly available source  140  via the network  150 . The publicly available source  140  contains information on a plurality of regulated institutions. The publicly available source can include regulatory agencies (e.g., the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA), for example. In one exemplary embodiment, the publicly available source  140  publishes consolidated call reports that contain information on a plurality of institutions (e.g., FDIC and NCUA for financial institutions). The computer processing device  110  retrieves the information from the publicly available source  140  via the network  150  and stores the information in the extracted information database  122 . 
     The client institution  130  is configured to communicate with the computer processing device  110  via network  150 . The client institution  130  provides the computer processing device  110  with a list of employees and the area of responsibility for each employee on the list. 
     The computer processing device  110  creates a client questionnaire that is separated into a plurality of role categories. The plurality of role categories can include, for example, chief compliance officer, loan lead, deposit lead, advertising lead, and operations lead. The client questionnaire is then distributed to the client institution  130  with each employee on the list of employees receiving questions corresponding to the employee&#39;s area of responsibility. For example, the compliance officer of the client institution  130  will receive questions related of the chief compliance officer role category. It will be apparent to persons having skill in the relevant art that the role categories and distribution of the client questionnaire will vary depending on the client institution  130 . For example, if the client institution  130  does not employ a compliance officer, then questions corresponding to the chief compliance officer role category may be distributed to a different employee, or split among multiple employees. The answers are then transmitted from the client institution  130  to the computer processing device  110 , and are stored in the client questionnaire database  124 . 
     The computer processing device  110  is also configured to locate data in the extracted information database  122  corresponding to the client institution  130 . This located data gets stored in the client questionnaire database  124  alongside the questionnaire answers. In one embodiment, an interview with the client institution  130  is also conducted, and the resulting data is also stored in the client questionnaire database  124 . The computer processing device  110  then makes an assessment of the risk that the client financial institution  130  will not be compliant with a set of regulations, based on the data in the client questionnaire database  124 . Sets of regulations can include, for example, non-governmental regulations (e.g., self-imposed regulations) or governmental regulations (e.g., USA PATRIOT ACT regulations, or provisions of the Bank Secrecy Act, state, local, or other federal regulations), or nearly any other regulation, standard or best practice (whether self-imposed or otherwise). 
     In one embodiment, the assessed risk of the client institution  130  is represented by a risk rating value. The risk rating value is a representation of the compliance risk of a institution evaluated across a plurality of categories. In one embodiment, the categories are market environment, economic, political, technological, infrastructure, and personnel. In some embodiments, the relative risk of each of the categories is weighted in order to achieve an overall risk rating value. In one embodiment, market environment risk represents 20% of the risk rating value, economic risk represents 20%, political risk represents 20%, technological risk represents 20%, infrastructure risk represents 10%, and personnel risk represents 10%. 
     In one exemplary embodiment, in addition to overall risk weighing by category, the individual risk elements within a category are individually weighted. There can be individual risk factors in multiple categories, for example, in market environment (e.g., geographic region, competition factors, dominance in market) or in economic (e.g., earnings, delinquency, regulatory oversight). In one embodiment, because there can exist interrelationships among risk elements between categories, a multiplier is applied to recognize the interrelationships where appropriate. The multiplier can be mathematically quantified, e.g., if 3 of 7 risk factors are a 3 or higher on a 5 point scale, then a 1.2× multiplier is applied. It will be apparent to persons having skill in the relevant art(s) that specific factors may be given higher weighting due to their effect on compliance risk. 
     In one exemplary embodiment, the computer processing device  110  is also configured to create a set of policies and procedures necessary for the client institution  130  to adopt in order to achieve or maintain compliance with the set of regulations. The set of policies and procedures are stored in the client policy and procedures database  126  and made available to the client institution  130 . In one embodiment, the set of policies and procedures is designed to be implemented over the course of one calendar year. 
     In one exemplary embodiment, the computer processing device  110  provides the client institution  130  with notifications of activities required to perform to achieve/maintain compliance in accordance with the set of policies and procedures. This is beneficial as it allows the client institution  130  to be aware of what is necessary to achieve or maintain compliance without the need of employing an outside provider or a full-time compliance employee to prepare and perform required activities. In one embodiment, the notifications are provided to specific employees of the client institution  130  based on their area of responsibility. Any media generated by the client institution  130  in performing the required activities is stored in client compliance database  128 . The types of media generated will be apparent to persons having skill in the art(s), and can include, for example, compliance reports or documents generated by various types of transactions (e.g., loan agreements and other financial transactions, research papers, etc.). 
     In one exemplary embodiment, the computer processing device  110  evaluates the media stored in the client compliance database  128  for compliance with the set of regulations and provides compliance feedback to the client institution  130 . In one embodiment, the computer processing device  110  updates the client questionnaire database  124  based on data obtained from analyzing the client compliance database  128 . In other embodiments, the computer processing device  110  reassesses the compliance risk of the client institution  130  based on the updated client questionnaire database  124  and generates a new set of policies and procedures and updates the client policy and procedures database  126  accordingly. In one embodiment, the computer processing device  110  provides the client institution  130  with new notifications based on the updated client policy and procedures database  126 . In one embodiment, this process is repeated continually to assist the client institution  130  in achieving and/or maintaining compliance with the set of regulations. 
       FIG. 2  illustrates a block diagram of an additional exemplary embodiment of the system  100  for assessing compliance risk of an institution. In  FIG. 2 , the computer processing device  110  is connected to the plurality of databases  120  via the network  150 . 
       FIG. 3  illustrates a block diagram of another exemplary embodiment of the system  100  for assessing compliance risk of an institution. In  FIG. 3 , the system  300  for assessing compliance risk is implemented without the use of the plurality of databases  120 . Instead, each of the databases are connected in the system  300  separately via the network  150 . For example, the extracted information database  122  is connected to the computer processing device  110  and the publicly available source  140 . 
     In the embodiment illustrated in  FIG. 3 , the client policy and procedures database  126  and the client compliance database  128  are each connected both to the computer processing device  110  and the client institution  130  via the network  150 . In this embodiment, it allows for the client institution  130  to, for example, store generated media directly into the client compliance database  128 , which can later be accessed by the computer processing device  110  to evaluate for compliance, all via the network  150 . In one embodiment, this is implemented by cloud computing. 
       FIG. 4  illustrates a flowchart of a method  400  of assessing compliance risk of a regulated institution. 
     In step  402 , the computer processing device  110  of  FIG. 1  extracts data on a plurality of institutions from the publicly available source  130 . In one exemplary embodiment, the publicly available source is a regulatory agency. In step  404 , the information is stored in the extracted information database  122 . 
     In step  406 , the computer processing device  110  creates a client questionnaire and separates questions into a plurality of role categories. In one embodiment, the plurality of role categories includes chief compliance officer, loan lead, deposit lead, advertising lead, and operations lead. In step  408 , the computer processing device  110  obtains a list of employees and their area of responsibility from the client institution  130 . In step  410 , the computer processing device  110  distributes the client questionnaire to the client institution  130  with each employee receiving questions corresponding to their area of responsibility. 
     In step  412 , the computer processing device  110  receives the answers to the client questionnaire and stores them, in step  414 , in the client questionnaire database  124 . Data on the client institution  130  is located, in step  416 , in the extracted information database  122  and stored in the client questionnaire database  124 . In step  418 , the computer processing device  110  assesses the risk that the client institution  130  will not be compliant with a set of regulations based on the answers and data in the client questionnaire database  124 . In some embodiments, the set of regulations are governmental based. For financial institutions, in one embodiment, the set of regulations is the USA Patriot Act and/or the Bank Secrecy Act. For food and drug companies, the set of regulations would include U.S. Food and Drug Agency (FDA) regulations and like agencies around the world. For health care providers, the regulations come from a variety of sources including The Centers for Medicare and Medicaid Services (CMS) for reimbursement. 
     In step  420 , the computer processing device  110  assigns a risk rating value to the client institution  130  based on the assessed compliance risk. In some embodiments, the risk rating value is evaluated as a rating across a plurality of risk categories. In one embodiment, the plurality of risk categories includes market environment, economic, political, technological, infrastructure, and personnel risk. In one embodiment, each risk category includes a plurality of risk elements. In another embodiment, a multiplier is applied to weigh the plurality of risk elements. 
     In step  422 , the computer processing device  110  creates a set of policies and procedures for the client institution  130 , based on the institution&#39;s risk rating value, to follow to achieve or maintain compliance with the set of regulations and stores the set of policies and procedures in the client policy and procedures database  126 . In step  424 , the computer processing device  110  notifies the client institution  130  of activities to be performed as prescribed by the set of policies and procedures. In some embodiments, the notification is provided to employees of the client institution  130  based on their area of responsibility. 
       FIG. 5  illustrates a flowchart of additional features to the method  400  for assessing compliance risk of a regulated institution. 
     In step  502 , any media that is generated by the performance activities required to achieve/maintain compliance is stored in the client compliance database  128 . The stored media is analyzed, in step  504 , for compliance with the set of regulations. 
     In step  506 , the computer processing device  110  updates the data in the client questionnaire database  124  to include data based on the analyzing performed in step  510 . Then, in step  514 , the computer processing device  110  reassesses the compliance risk of the client institution  130  using the updated client questionnaire database  124 . In one embodiment, after reassessing the risk, steps  502  to  514  are repeated. 
     Where methods described above indicate certain events occurring in certain orders, the ordering of certain events may be modified. Moreover, while a process depicted as a flowchart, block diagram, etc. may describe the operations of the system in a sequential manner, it should be understood that many of the system&#39;s operations can occur concurrently. For example, although the computer processing device  110  is disclosed and illustrated (e.g., in  FIG. 3 ) as being configured to receiving and store answers to the client questionnaire prior to locating and storing data extracted from the extracted information database, in some embodiments, the computer processing device  110  can first locate and store the extracted data prior to receiving and storing the answers to the client questionnaire. In other embodiments, the computer processing device  110  can concurrently receive and store both the extracted data and the answers to the client questionnaire. 
     Social Networking 
     In some embodiments, the computer processing device  110  of the system  100  may be configured to provide a social network for client institutions (e.g., the client regulated institution  130 ). Methods and systems suitable for operating and maintaining a social network will be apparent to persons having skill in the relevant art and may include various web hosting servers operated by or on behalf of the computer processing device  110  and databases, which may be included in the plurality of databases  120 . For example, the computer processing device  110  may maintain (e.g., or a third party may maintain on behalf of the computer processing device  110 ) a website where client institutions  130  may register and connect with other client institutions in the same regulated industry. 
     The website may include blogs, message boards or forums, or other socially networked features as will be apparent to persons having skill in the relevant art. For example, the website may include a list of regulators or regulatory agencies (e.g., which may be created and/or maintained by the client processing device  110  or by the registered client institutions  130 ). The client institutions  130  that work with the respective regulators or regulatory agencies may post or share information with other institutions, such as tips or advice regarding compliance and the individual personalities of the specific regulators or agencies. For example, a client institution  130  may share that a specific regulator emphasizes a particular regulation and has a unique style for review of compliance of the regulation, which information may be used by another institution to ensure compliance. 
     In some embodiments, the computer processing device  110  may mine information in the social network as provided by the client institutions  130 , which may be used to improve the sets of policies and procedures created and provided to the client regulated institutions  130 . In such an instance, individual client institutions  130  would not need to go through every post in the social network as they could be confident that any useful information provided by other institutions would be taken into account when their set of policies and procedures to follow is created. 
     Additional features that may be included in the social network will be apparent to persons having skill in the relevant art. For example, each regulated industry may have a social network unique to that industry, or subpart of an industry demarked in any manner, such as geographically or by zones (geographic or otherwise) of authority or responsibility of an regulatory agency or agencies. In some instances, there may be a separate social network for each regulatory agency or set of regulations. For example, there may be a national or state credit union network, or a drug manufacturer network in a particular country or state. In some embodiments, the social network may be controlled by the institutions themselves, such as an association created or populated by institutions in the regulated industry and/or area. 
     It will be apparent to persons having skill in the relevant art that the system  100  and method  400  may be used for assessing compliance risk for an institution in any industry that is heavily regulated. In an exemplary embodiment, the regulations may be set forth by multiple regulatory agencies. Such industries may include the financial industry, where the client regulated institution may be a bank, credit union, etc. Other industries may include the pharmaceutical or medical industry, such as a pharmaceutical research company or a medical testing laboratory. Institutions that contract with the federal government, such as defense contractors, etc., may also benefit from the system  100  in order to comply with numerous regulations set forth by the government and other agencies. Additional industries will be apparent to persons having skill in the art, such as the insurance industry (e.g., for certified life underwriting institutions). 
     Furthermore, while the system  100  may be useful for creating policies and procedures for client institutions to maintain compliance with regulations, it will be apparent to persons having skill in the relevant art that the system  100  may also be used for other services related to regulation, such as reimbursement from regulatory or government agencies. For example, a client medical institution may be provided with instructions and/or guidance for being reimbursed for providing Medicare services by the Center for Medicare &amp; Medicaid Services (CMS), or for modifying business practices to further facilitate compliance or an increase in reimbursement. 
     The system  100  may be beneficial for smaller institutions, such as locally owned small businesses that may not be able to afford to employ compliance personnel. The system  100  may also be beneficial for larger institutions that, although they can afford to employ compliance personnel, may have a staggering amount of information to review and process in addition to extra or stricter regulations, which may take a significant amount of time even for full-time compliance personnel. The computer processing device  110  and the created set of policies and procedures may be beneficial for saving both small and larger regulated institutions time and expense when maintaining compliance with regulations. In some instances, the computer processing device  110  may be able to provide assistance to the client institution  130  such that it may improve their compliance practice from spending 80% of time looking for compliance issues and 20% of the time fixing any issues, to spending only 20% of the time looking for issues and 80% of the time fixing and/or improving compliance. Furthermore, the review and assistance of an independent party (e.g., the computer processing device  110 ) may provide additional protection against fraud in instances where an employee of the client institution  130  may not be able to detect compliance issues. 
     Techniques consistent with the present disclosure provide, among other features, a system and method of assessing compliance risk of a regulated institution. While various exemplary embodiments of the disclosed system and method have been described above, it should be understood that they have been presented for purposes of example only, not limitations. It is not exhaustive and does not limit the disclosure to the precise form disclosed. Modifications and variations are possible in light of the above teachings or may be acquired from practicing of the disclosure, without departing from the breadth or scope. The scope of the invention is defined by the claims and their equivalents.