2025 Risk Series: Governance, Compliance Management & Board Oversight

The Regulatory Risks

Strong governance and compliance management are critical for community banks to maintain regulatory compliance, mitigate risks, and ensure operational stability. Regulators expect boards and senior management to take an active role in overseeing compliance programs, internal controls, and risk management frameworks. Weak governance, ineffective compliance frameworks, and lack of board engagement can lead to enforcement actions, financial penalties, and reputational damage.

Example Enforcement Actions

• Maple City Savings Bank (2024):  OCC Consent Order for failures related to board oversight, corporate governance, and compliance risk management.

• The First National Bank of Shiner (2024):  OCC Cease and Desist Order requiring remediation of deficiencies in corporate governance and board oversight that had resulted in, among other deficiencies, an investment strategy putting the bank at excessive interest rate risk.

• Touchmark National Bank (2024):  OCC Formal Agreement requiring prompt remediation of extensive deficiencies in board and management oversight.

• United Fidelity Bank (2023/2024):  OCC Consent Order requiring remediation of deficiencies in corporate governance and enterprise risk management; FRB Cease and Desist Order issued for deficiencies in oversight by the board and senior management especially with matters related to enterprise risk management and compliance with laws and regulations.

Key Risks to Address Now

• Weak Board Oversight:  Boards must ensure active engagement in risk management, compliance monitoring, and strategic decision-making.

• Ineffective Compliance Programs:   Insufficient staffing, outdated policies, and failure to conduct regular risk assessments can result in compliance failures.

• Lack of Internal Controls:  Without proper checks and balances, banks face increased risks of fraud, regulatory violations, and financial mismanagement.

• Regulatory Non-Compliance:   Failure to meet evolving regulatory expectations can lead to enforcement actions, fines, and other regulatory restrictions.

Strategies to Strengthen Governance & Compliance

• Enhance Board & Senior Management Oversight

  • Establish a governance framework that clearly defines roles and responsibilities for compliance.

  • Conduct regular board meetings with compliance updates and risk assessments.

• Strengthen Compliance Risk Management

  • Implement a formalized compliance management system that aligns with regulatory expectations.

  • Allocate sufficient resources to compliance staff, training, and technology.

• Improve Internal Controls & Monitoring

  • Conduct independent audits to evaluate the effectiveness of governance and compliance controls.

  • Utilize real-time monitoring tools to detect compliance breaches and operational risks.

• Ensure Regulatory Readiness

  • Stay ahead of regulatory changes by working with internal and external compliance consultants and auditors who specialize in regulatory compliance to ensure policies and procedures align with evolving requirements.

  • Conduct regular compliance training for board members, senior management, and compliance teams to ensure they are up to date with the latest regulations and enforcement trends.

  • Engage internal and external experts to run mock regulatory examinations to self-identify and correct any issues before your regularly scheduled regulatory exams.

Take Action Now

Community banks must strengthen their governance, compliance management, and board oversight to remain resilient against regulatory expectations and operational risks. By implementing proactive compliance measures, enhancing board engagement, and fostering a culture of accountability, banks can mitigate risks and maintain regulatory trust.

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Stay tuned for the next edition in our blog series: "Consumer Compliance & Overdraft Practices."