News and Resources

Regulatory Relationship Management: Building Trust, Credibility with Regulators

Lori J. Sommerfield

May 3, 2011

The cornerstones of a successful working relationship between a regulated financial institution and its functional regulator are trust and credibility. A regulator lacking trust and confidence in his business contact at a banking organization, or in the information provided by that contact, can cause serious problems for the bank. Moreover, similar fact patterns or operational circumstances can result in significantly different outcomes for institutions that use effective regulatory relationship management tools and those that do not. In this article, we use the shorthand ‘‘RRM’’ to refer to the function of regulatory relationship management.

Establishing trust and credibility, whether with business partners, customers or regulators, is not achieved overnight by any banking organization. Focused efforts and constant vigilance, combined with time, are the necessary ingredients. The more complex the business and the rules governing it, the more time will be required for the development of a relationship of trust between the financial institution and its regulator.

Banking organizations may have more than one regulator — for example, a federal and state regulator, or two different federal regulators for the bank and its holding company. This regulatory complexity compounds the need for effective RRM.

Creating credibility is a process, which advances only through honest, continuous communication between the banking organization and its regulators. Credible communications are informed and nurtured by diligent efforts on the company’s part to understand the legal and regulatory framework in which it operates.

Published by BNA's Banking Report