As we look back at 2017, one thing is certain—banking continues to bring change. Mergers and acquisitions are a part of that evolving landscape, and it is important not to underestimate the importance of due diligence with consumer protection laws in these transactions.
Regardless of whether the surviving institution has a history of maintaining a strong compliance management system or the size of the banks involved, there will be differences that need to be addressed. A successful transition will depend on an effective merger due diligence process. Although the board and senior management is primarily responsible for these efforts, a successful merger will encompass risk management, information technology, the Bank Secrecy Act, regulatory compliance, community reinvestment act, and possible more. Setting up the framework and involving the right staff early in the process will help your organization to plan and prepare for a smooth transition.
What to Expect
The due diligence process will include Bank Secrecy Act rules, lending regulations, deposit regulations and others. Consumer compliance thresholds, as a result of the merger, should be determined early in the process. Depending on the results, this could require significant procedural changes. Some of the regulations that should be considered include HMDA, RESPA servicing and CRA. Regardless of whether the risks are high, medium or low, they should be considered in the overall planning process.
The next step is to evaluate the merging banks characteristics. This analysis may include assessment area, branching, lending and deposit products and services, BSA practices, and if either have affiliates. The side-by-side analysis of the organizations will provide a view of the differences that will impact the merger or acquisition process. Ultimately, this will outline where your organization needs to apply resources or implement changes.
There are some regulations that present a higher level of risk: Fair Lending; Unfair, Deceptive, or Abusive Acts or Practices (UDAAP); and the Bank Secrecy Act, among others, can result in legal and reputational risks. It is important to understand what those risks are as the banks become one. Knowing which areas have more risk will allow management to allocate the appropriate resources and determine which process, procedures or products will survive and continue with the surviving institution.
With a thorough understanding of the due diligence results, you can roll up your sleeves. Remember, this is just the beginning. You need time for updated policies and procedures, change in terms, system changes and don’t forget training, to name a few items. The one thing we know for certain is change is inevitable. Planning and preparing for tomorrow is the key to success.
Please contact your Eide Bailly Professional if you have questions regarding regulatory compliance.
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