Skip to content

Current FDICIA Regulatory Relief – What You Need to Know Now and for the Future

Mar 18, 2024

The current trend among community banks is significant asset growth over the past few years. An insured depository institution (IDI) should actively monitor its asset size to allow sufficient preparation time for Federal Deposit Insurance Corporation Improvement Act (FDICIA) implementation. IDIs should focus on the following questions as part of this planning process.

Why was FDICIA enacted, and where are the primary requirements found?

  • Congress enacted FDICIA in 1991 in response to the savings and loan crisis in the United States. Its passage strengthened the FDIC’s power and reduced the crisis’s negative impacts.
  • The primary requirements of FDICIA are included in Part 363 of the FDIC’s Laws and Regulations.

What are the primary asset thresholds for FDICIA, and what is the measurement point?

  • $500 million
  • $1 billion
  • Bank management should be aware that there are additional requirements at $3 billion in total assets. The audit committee should include members with banking or related financial management expertise, have access to its own outside counsel, and not include any large customers of the institution as defined in the guidance.
  • The measurement point is the IDI’s total assets at the beginning of the fiscal year. It is critical that institutions actively monitor their asset sizes, particularly close to these thresholds, to allow adequate preparation time for the implementation process.

What are the primary FDICIA requirements at $500 million and $1 billion in total assets?

$500 million

  • A majority of the audit committee members must be independent of management (e.g., outside directors).
  • Bank management (generally CEO and CFO) is required to provide a statement of responsibilities for preparing the annual financial statements, establishing and maintaining an adequate internal control structure for financial reporting, and complying with designated laws and regulations.
  • Bank management is required to provide an assessment and a conclusion regarding compliance with designated laws and regulations relating to insider loans and dividend restrictions.
  • The external audit firm must comply with additional independence standards and interpretations of the American Institute of Certified Public Accountants (AICPA), Securities and Exchange Commission (SEC), and the Public Company Accounting Oversight Board (PCAOB), regardless of whether the institution is a public company. The most restrictive independence standards should be followed. SEC and PCAOB standards are more stringent than AICPA standards with respect to allowable non-audit services. Therefore, as an institution nears the $500 million total asset threshold, it is imperative to evaluate non-attest services performed by the independent external auditor. Some examples of common non-attest services that are no longer permitted include the external auditor’s preparation of the institution’s financial statements and the tax accrual preparation.

$1 billion

  • All audit committee members must be independent of management (outside directors).
  • Bank management (generally CEO and CFO) is required to provide a statement of responsibilities for preparing the annual financial statements, establishing, and maintaining an adequate internal control structure for financial reporting, and complying with designated laws and regulations.
  • Bank management must provide an assessment and a conclusion regarding compliance with designated laws and regulations relating to insider loans and dividend restrictions.
  • Bank management must assess the effectiveness of internal control over financial reporting (including regulatory reporting) at the end of the fiscal year.
  • The independent auditors must also issue a report on internal controls over financial reporting. For non-public filers, the internal controls audit is conducted in accordance with the AU-C 940An Audit of Internal Control Over Financial Reporting That Is Integrated with an Audit of the Financial Statements. The external auditor must also still comply with the independence standards and interpretations of the AICPA, SEC, and the PCAOB.

What are some important aspects of a successful implementation?

  • Monitor IDI asset size to allow adequate implementation time.
  • Determine if a third-party professional services firm is needed to assist with the process.
  • Formulate a detailed FDICIA Action Plan with deadlines and important benchmarks.
  • Conduct a meeting of business owners/stakeholders within the institution to obtain buy-in and determine a communication plan.
  • Receive the external auditor’s involvement and provide regular status updates to the audit committee and external auditor.
  • Expect some internal controls to be ineffective as part of the initial implementation and require remediation. Some problematic internal controls may need to be tested more than once, depending on the remediation’s effectiveness.

Implementing FDICIA can be a complex and time-intensive process. For guidance and support to streamline your implementation, reach out to a CRI advisor. They can help make the process smoother and more efficient, ensuring compliance and enhancing your institution’s financial integrity.

 

Relevant insights

Join Our Conversation

Subscribe to our e-communications to receive the latest accounting and advisory news and updates impacting you and your business.

This field is for validation purposes and should be left unchanged.