During a recent compliance examination, regulatory examiners found that the bank was not conducting flood hazard area determinations before closing on construction loans. The compliance professional has reviewed the files and agreed with the examiners' finding. What should be done FIRST?
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A. B. C. D.A
The correct answer to this question is A. Review the bank's flood policies and procedures to determine where the compliance failure occurred.
The compliance failure in this scenario relates to the bank's failure to conduct flood hazard area determinations before closing on construction loans. As such, the first step in addressing this issue should be to review the bank's flood policies and procedures to determine where the failure occurred. This will help to identify any gaps or weaknesses in the bank's policies and procedures that contributed to the compliance failure.
Once the review is completed, the bank should take steps to address any deficiencies in its policies and procedures related to flood hazard area determinations for construction loans. This may involve revising the bank's policies and procedures, providing additional training to staff responsible for conducting flood determinations, or implementing new controls to ensure compliance with the flood determination requirements.
Before making any changes, however, the bank should conduct a risk assessment of the flood determination requirement on construction loans. This will help to identify the potential impact of non-compliance and ensure that the bank's resources are allocated appropriately to address the issue.
Preparing an analysis for bank management explaining the requirement may also be necessary, particularly if the bank's senior management is not familiar with the flood determination requirements. This analysis should outline the regulatory requirements, the compliance failure, and the steps that the bank is taking to address the issue.
Finally, the bank should review all construction loan files to determine the extent of the problem. This will help to identify any loans that were closed without proper flood determinations and ensure that remedial action is taken where necessary.