Glossary term
Regulatory Examination
Subject: Compliance and Regulation, Regulatory Supervision and Enforcement
Also known as: Regulatory Inspection, Supervisory Visit, Supervisory Review, On-site inspection
A regulatory examination is a supervisor's structured review of a firm's records, systems and practices, on site or remotely, to test compliance with rules and judge the quality of its risk management.
Explanation
Examinations can be routine, driven by the supervisor's risk assessment, or triggered by a complaint, incident or market event. They may cover the whole firm or one theme, such as anti-money laundering or complaints handling. The usual sequence is: a notice and a document request, interviews and sampling of files, then a closeout meeting and a written report of findings. Findings are graded by severity, and the firm must respond with a plan and deadlines to fix them. Serious findings can lead to enforcement action. The wider supervisory review, seen in Basel's second pillar for banks, also covers how a firm assesses its own capital and risks. Firms prepare through mock inspections and keeping records ready. Each report gives the regulator first-hand evidence and the firm a dated list of weaknesses to repair.
Example
Examiners spend two weeks on a lender's complaints handling, interviewing staff, sampling 200 complaint files and reviewing root-cause reports. They find that a fifth of complaints missed the deadline. The lender must submit a remediation plan within 30 days and report monthly until the backlog is cleared.
Not to be confused with
- Internal Audit
- Internal audit is the firm's own independent assurance function. A regulatory examination is carried out by the external supervisor.