On July 21, 2010, President Barack Obama signed The Dodd–Frank Wall Street Reform and Consumer Protection Act (often called Dodd-Frank) into law.
In the wake of the Great Recession, the Dodd-Frank Act made regulatory changes to almost every part of the Financial Industry, and has been a hot button issue on both sides of the aisle. While some say it did not go far enough to avoid another financial crisis and the need for more bailouts, others feel its onerous regulation and bureaucracy restricts financial institutions, stifles competition and adds undue costs.
Regardless of your opinion on the law, its implementation has been difficult and time-consuming. Recently, bank regulators began taking a keener interest in how banks manage their third party vendors, especially with regard to real estate lending.
On May 18, 2015 Environmental Data Resources (EDR) released an excellent article titled, Dodd-Frank and Vendor Management: “The Exposure is Real”. In the article, author Dianne Crocker discusses how enforcement actions by regulators against credit unions and community banks jumped 30% in the first quarter of 2015 over the number in the previous quarter – with the majority of these actions coming against small institutions with assets below $250 million. As Crocker argues, “Given that today’s regulatory pressures are not expected to diminish any time soon—nor are enforcement actions—risk managers will need to find efficient ways to follow and comply with requirements, including those related to vendor management.”
In the article, Crocker points to several issues that forward thinking commercial real estate lenders need to consider when addressing Dodd-Frank and how to best manage bank risk related to their third party service providers. These include:
- “A key impact of the vendor management regs is what I call The Sheepdog Effect. A sheepdog can only manage and watch two dozen or so sheep at a time. After that, the wolves will get a few of them. The shift is that we’re leaning toward using larger vendors with greater coverage and greater capabilities. The smaller firms are becoming the anomaly. It’s because we have to limit our liability and implement significant QC programs.”
- “It’s no longer the case that vendors are on the list and stay there forever. They have to be engaged and performing.”
- “Many institutions are moving to using larger, more established vendors simply as a matter of course and safety.”
- “Bank vendor managers need to realize that the exposure related to what their vendors do is real. And it can be dramatic. And it needs to be a main focus of bank policies and procedures, and a main focus of diligence and aggressive enforcement at the bank management level.”
GRS Group scores favorably on all the issues raised above.
As an industry leading due diligence provider with coverage in all 50 states and operations in Europe, GRS Group is a fully engaged, institutionally approved third party provider. Our client list includes Conduit Lenders, Life Insurance Companies, Private Equity Investors, Agency Lenders, Banks (National, Regional and Community), Credit Unions and more. The firm carries all necessary general and professional liability insurance and is trusted by lending institutions of all sizes.
GRS Group’s team of seasoned industry veterans can help a sheepherder sleep well at night. Please call any of our national sales contacts to discuss how we can help ensure your bank is positioned to avoid undue third party management scrutiny under the Dodd-Frank requirements.
Jeff Coyne is Director of Business Development at GRS | Corteq. His focus is on business development and managing relationships with clients, affiliates and industry colleagues. GRS Group provides Facilities Assessment, Environmental Site Assessment, Appraisal/Valuation, Construction Project Management, Construction Cost Analysis, ALTA Survey/Zoning, Title Insurance and Financial Advisory.