In our last post we covered how the $10 billion threshold transforms governance and risk management, requiring dedicated teams, board committees, and specialized expertise. This week, we're tackling Operational Requirements, where crossing $10 billion in assets triggers fundamental changes to how banks manage compliance, vendors, audits, and models.
These aren't minor process tweaks. They represent a complete overhaul of operational infrastructure that can take 18-24 months to implement properly, and remember - they have to be in place before you cross the threshold.
At $10 billion, regulators expect banks to operate with the systems, controls, and documentation standards of significantly larger institutions. The "we're a community bank" explanations that worked at $8 billion won't satisfy examiners anymore.
Below $10 billion, compliance responsibilities are often spread across the organization, with different operation managers handling compliance requirements.
That approach doesn't work at $10 billion.
Regulators now expect formal, enterprise-wide compliance management systems including a Chief Compliance Officer reporting directly to the CEO and board. The compliance function must have adequate resources, which typically means dedicated officers for major areas like BSA/AML, fair lending, mortgage compliance, and consumer compliance, plus support staff.
Written policies and procedures must cover every applicable regulation in detail. Not high-level guidance, but step-by-step procedures that a new employee could follow. For TILA-RESPA alone, this might be a 50-page document covering disclosure timing, fee tolerance calculations, and error correction procedures.
Compliance risk assessments become a core activity - annual enterprise-wide assessments that identify and prioritize compliance risks across all products and business lines. This assessment drives your testing plan and resource allocation.
Testing must be risk-based, comprehensive, and independent. You need formal testing plans covering all high and moderate-risk areas on defined schedules (high-risk areas quarterly, moderate-risk annually). Testing can't be done by people responsible for the activity being tested.
Third-party risk management shifts from "we have contracts with our vendors" to comprehensive programs with due diligence, ongoing monitoring, and contingency planning.
Before engaging vendors, banks must conduct due diligence on financial stability, regulatory compliance, security practices, and business continuity capabilities. Contracts must include specific provisions addressing regulatory expectations, data security, audit rights, and termination procedures.
Ongoing monitoring means regular reviews of vendor performance, financial health, and compliance status, and you need documented contingency plans for what happens if a critical vendor fails.
Regulators view vendor management as an extension of the bank's own risk management. If your core processor has a compliance problem, that's your compliance problem.
Many banks under $10 billion use outsourced or part-time internal audit functions. At $10 billion, regulators expect robust, independent internal audit staffed with qualified personnel.
Internal audit must operate under a board-approved charter, provide comprehensive coverage of all risk areas on a regular cycle, and have sufficient resources to do the job properly. This typically means multiple dedicated internal auditors rather than contracted services, with expertise across credit, operations, compliance, BSA/AML, and IT.
The audit function must be truly independent, reporting to the board or audit committee, and not to management whose activities they're auditing.
If your bank uses models for decisions like credit scoring, stress testing and pricing algorithms, you need formal model risk management at $10 billion.
This means model development standards, independent validation (by someone who didn't build the model), ongoing performance monitoring, and governance over model changes. Banks must maintain model inventories, documentation of model methodologies and assumptions, and validation reports.
These operational changes represent significant ongoing costs. Between compliance staff, internal audit teams, enhanced vendor management, model risk management expertise, banks are typically looking at millions of dollars in additional annual operating expenses. One way to bring these costs down is through automated compliance solutions, like Cable, which can make system upgrades considerably cheaper on a long term basis.
More importantly, building this infrastructure takes time. You can't hire 15 compliance professionals, implement comprehensive vendor management, and establish model risk management frameworks in six months. Banks need 18-24 months of advance preparation to have these systems operational before crossing $10 billion.
In our next and final post in this series, we'll cover the changes in supervision and examination.
Breaching the $10B Asset Threshold - Governance and Risk Management Compliance Requirements
The Benefits of an Automated Risk AssessmentIn our last post we covered how the $10 billion threshold transforms governance and risk management, requiring dedicated teams, board committees, and specialized expertise. This week, we're tackling Operational Requirements, where crossing $10 billion in assets triggers fundamental changes to how banks manage compliance, vendors, audits, and models.
These aren't minor process tweaks. They represent a complete overhaul of operational infrastructure that can take 18-24 months to implement properly, and remember - they have to be in place before you cross the threshold.
At $10 billion, regulators expect banks to operate with the systems, controls, and documentation standards of significantly larger institutions. The "we're a community bank" explanations that worked at $8 billion won't satisfy examiners anymore.
Below $10 billion, compliance responsibilities are often spread across the organization, with different operation managers handling compliance requirements.
That approach doesn't work at $10 billion.
Regulators now expect formal, enterprise-wide compliance management systems including a Chief Compliance Officer reporting directly to the CEO and board. The compliance function must have adequate resources, which typically means dedicated officers for major areas like BSA/AML, fair lending, mortgage compliance, and consumer compliance, plus support staff.
Written policies and procedures must cover every applicable regulation in detail. Not high-level guidance, but step-by-step procedures that a new employee could follow. For TILA-RESPA alone, this might be a 50-page document covering disclosure timing, fee tolerance calculations, and error correction procedures.
Compliance risk assessments become a core activity - annual enterprise-wide assessments that identify and prioritize compliance risks across all products and business lines. This assessment drives your testing plan and resource allocation.
Testing must be risk-based, comprehensive, and independent. You need formal testing plans covering all high and moderate-risk areas on defined schedules (high-risk areas quarterly, moderate-risk annually). Testing can't be done by people responsible for the activity being tested.
Third-party risk management shifts from "we have contracts with our vendors" to comprehensive programs with due diligence, ongoing monitoring, and contingency planning.
Before engaging vendors, banks must conduct due diligence on financial stability, regulatory compliance, security practices, and business continuity capabilities. Contracts must include specific provisions addressing regulatory expectations, data security, audit rights, and termination procedures.
Ongoing monitoring means regular reviews of vendor performance, financial health, and compliance status, and you need documented contingency plans for what happens if a critical vendor fails.
Regulators view vendor management as an extension of the bank's own risk management. If your core processor has a compliance problem, that's your compliance problem.
Many banks under $10 billion use outsourced or part-time internal audit functions. At $10 billion, regulators expect robust, independent internal audit staffed with qualified personnel.
Internal audit must operate under a board-approved charter, provide comprehensive coverage of all risk areas on a regular cycle, and have sufficient resources to do the job properly. This typically means multiple dedicated internal auditors rather than contracted services, with expertise across credit, operations, compliance, BSA/AML, and IT.
The audit function must be truly independent, reporting to the board or audit committee, and not to management whose activities they're auditing.
If your bank uses models for decisions like credit scoring, stress testing and pricing algorithms, you need formal model risk management at $10 billion.
This means model development standards, independent validation (by someone who didn't build the model), ongoing performance monitoring, and governance over model changes. Banks must maintain model inventories, documentation of model methodologies and assumptions, and validation reports.
These operational changes represent significant ongoing costs. Between compliance staff, internal audit teams, enhanced vendor management, model risk management expertise, banks are typically looking at millions of dollars in additional annual operating expenses. One way to bring these costs down is through automated compliance solutions, like Cable, which can make system upgrades considerably cheaper on a long term basis.
More importantly, building this infrastructure takes time. You can't hire 15 compliance professionals, implement comprehensive vendor management, and establish model risk management frameworks in six months. Banks need 18-24 months of advance preparation to have these systems operational before crossing $10 billion.
In our next and final post in this series, we'll cover the changes in supervision and examination.
