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Financial Institutions, Know What to Expect at Your Next Regulatory IT Exam

Part 1 - Financial Institutions, Know What to Expect at Your Next Regulatory IT Exam

While sometimes the IT examination is separate, most of the time it’s incorporated into the Safety & Soundness exam. Regulatory examinations like Safety & Soundness are designed to assess the financial health and risk management practices of a financial institution, and the results are expressed as a number “grade” from 1 (highest) to 5 (lowest). An information technology (IT) exam is narrower in scope and utilizes four components to assess information management maturity: Audit, Management, Development and Acquisition, and Support and Delivery (AMDS).

With the twin challenges of the Pandemic and cybersecurity continuing into 2021, on top of an already full plate of regulatory expectations, it’s critical for institutions to be prepared to address all IT issues to meet regulator expectations and ensure their safety and soundness.

So exactly what should financial institutions expect at their next IT regulatory exam? We’ll break it down in a two-part IT Exam Prep blog series.

The Pre-examination Questionnaire

On one hand, anticipating the exam elements is relatively straightforward, as the examiner will provide a pre-exam questionnaire. This is somewhat akin to an open-book test where the questions are provided ahead of time.

However, there is no single standardized questionnaire that all regulators adopt—and there likely won’t be in the foreseeable future. (The InTREx was an attempt by the FDIC a couple of years ago to standardize the process, but it is not yet caught on universally.) So, when the examiner sends his or her pre-exam questionnaire, that essentially provides the framework you should follow to prepare for your examination.

Nevertheless, bankers should expect a certain amount of the unexpected. While you should expect examiners to closely adhere to the pre-examination questionnaire, there will most likely be “curveball(s)” included. Curveballs are deviations from the questionnaire that could trip you up if you’ve followed it too strictly.

But if you’ve done your job correctly and addressed all infosec matters adequately since your last exam, you are better positioned to pivot when you need to during the exam. In other words, treat the pre-exam questionnaire more as a starting point than a checklist. And if you find yourself presented with a difficult question, do not respond with anything you are not 100 percent sure of, and that you know you can document. It is perfectly acceptable – and advisable — to wait and answer the question later when you have the appropriate information available.

One final point about examiner interaction: we strongly advise that your ISO be the primary point-person for the exam.

In most institutions, the ISO has the broadest and deepest knowledge of your information security procedures and practices. The ISO can bring in others as needed (network admin, internal audit, external providers, etc.), but they should still stay very close to the conversation. We’ve seen many situations where someone other than the ISO is interviewed by the examiner, and because of the person’s comparative lack of knowledge, it has resulted in exam findings that otherwise could have been avoided.

To ensure your financial institution’s next regulatory IT exam is a success, stay tuned for part two of our IT Exam Prep blog series, where we will dive into the key areas of focus you can expect to be evaluated on.