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What are the regulatory consequences from self identifying flood violations within the bank’s loan portfolio? After an investigation, it was determined that the violations were isolated to one market and to one or two lenders within that market. A flood compliance audit was performed on the entire real estate portfolio within that market (more violation were sited). Fortunately, none of the investigated loans are in a flood zone. These issues have been addressed with the appropriate lenders. Safeguards have been put in place to prevent this from happening again. The findings were reported to the board audit committee. The OCC was just in the bank to perform an audit this past spring and no flood violations were sited. External loan review has not sited any violations as well. Questions: Is there any other steps management should take at this point, other than follow up flood audits to make sure that the bank is in compliance? Should the violations be reported to the OCC? If so, could the bank be fined? What are the possible regulatory consequences from these violations?
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This is not something you want to try to conceal or hide from examiners. If you have documented the issues/violations in your monitoring and audit report, reported those on to the board and senior management, and implemented appropriate controls/training/other corrective actions to correct and prevent such violations in you have taken necessary steps.
Your examiners will likely ask for your monitoring and audit reports when they return and assess your performance since the violations.
Examiners could impose fines. Given that you found the violations, cured the problems, and have taken steps to assure the problems are not repeated I would expect the fines, if any, would be small.
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