Preparing for Your Next Banking Regulatory Exam: 10 Common Compliance Gaps

Effective regulatory exam readiness is not achieved through a last-minute, document-collection exercise. Instead, it is the natural outcome of a well-designed and consistently maintained compliance and risk management framework. An institution that embeds strong governance into its daily operations can approach an examination as an opportunity to demonstrate its commitment to safety, soundness, and consumer protection, rather than as a disruptive event requiring reactive preparation. A strong framework allows management and the board to articulate a clear and defensible narrative about how the organization identifies, measures, monitors, and controls its risks.

However, even well-intentioned programs can develop gaps as products, services, technologies, and regulations evolve. Identifying these weaknesses before examiners do is a critical function of proactive risk management. The following discussion outlines ten common compliance and risk management gaps that can weaken an institution's control environment and may create concerns during a regulatory examination.

Table of Contents

• Ten Common Gaps in Regulatory Exam Readiness

• Preparing for Emerging Risks

• Conducting a Pre-Exam Readiness Assessment

• Executive Takeaways

Ten Common Gaps in Regulatory Exam Readiness

Addressing the following areas is fundamental to building a compliance and risk management program that can withstand regulatory scrutiny. These gaps often represent systemic issues rather than isolated errors, and their remediation requires a coordinated effort across business lines, risk functions, and technology.

1. **Outdated or Incomplete Risk Assessments**

A risk assessment is the foundation of a risk-based compliance program. A common failing is a static assessment that is not updated to reflect changes in an institution’s risk profile. Assessments can become outdated when the institution launches new products, enters new geographic markets, adopts new delivery channels, or engages new third-party service providers. An incomplete assessment fails to consider the full range of inherent risks and the effectiveness of corresponding controls, leading to a misallocation of compliance resources. For example, a financial crime risk assessment that does not adequately evaluate the risks associated with a new instant payment service leaves the institution vulnerable to illicit activity and supervisory criticism.

2. **Policies That Do Not Reflect Actual Practices**

Examiners frequently find discrepancies between an institution’s written policies and its operational realities. This gap between documentation and execution can arise from poorly implemented procedures, inadequate training, or informal workarounds that have become common practice. For example, an institution may have a fair lending policy that prohibits discrimination, while weaknesses in its underwriting processes, data, or automated decisioning systems could nevertheless create potential fair lending risk. Effective governance should help identify and address gaps between documented requirements and actual practices.

3. **Weak Compliance Governance and Accountability**

Effective governance requires clear lines of responsibility and a well-defined structure for oversight. Weaknesses often appear as ambiguous ownership of key compliance tasks, inadequate resources for the compliance function, or a lack of direct and timely communication between the Chief Compliance Officer and the board. Without clear accountability, critical issues may not be escalated properly, and management may lack the information needed to make risk-informed decisions. A robust governance structure ensures that compliance has sufficient stature, independence, and authority to implement and enforce program requirements throughout the organization.

4. **Inadequate Monitoring and Testing**

Monitoring and testing provide assurance that compliance controls are functioning as intended. An inadequate program may rely on testing that is too infrequent, narrow in scope, or not properly risk-based. Institutions should tailor the frequency and depth of their testing to the risk level of the activity being reviewed. High-risk areas, such as new consumer lending products or international payments, warrant more intensive scrutiny than lower-risk operations. A sound practice involves a testing plan that is dynamic, informed by the results of risk assessments, and capable of identifying and reporting systemic control weaknesses to management for correction.

5. **Unresolved or Recurring Issues**

Unresolved or recurring issues may indicate weaknesses in issue management, root-cause analysis, remediation, or the sustainability of corrective actions. This often points to a weak issue management process that lacks clear ownership, robust root-cause analysis, and independent validation of corrective actions. When issues recur, it suggests that the institution has addressed the symptoms rather than the underlying process or control deficiencies. A durable remediation process involves not only fixing the immediate problem but also implementing preventive measures and monitoring to ensure the issue does not resurface.

6. **Incomplete Management and Board Reporting**

Reporting that is voluminous but lacks insight is a common deficiency. Management and the board require concise, risk-focused information to fulfill their oversight responsibilities. Effective reporting highlights significant risks, emerging trends, the status of key initiatives, and progress on remediation activities. Conversely, reporting is incomplete when it omits critical information or fails to provide the context needed for decision-making. For example, a monthly compliance dashboard that shows the number of completed training modules but omits data on overdue high-risk findings provides a misleading picture of the institution's compliance posture.

7. **Weak Third-Party Risk Oversight**

As institutions increasingly rely on third parties for important operations and technology, weaknesses in third-party risk management can create significant operational, compliance, and strategic risks. Common gaps may include insufficient due diligence, inadequate ongoing monitoring, unclear contractual responsibilities, or limited visibility into significant dependencies. While institutions may outsource activities, outsourcing does not eliminate their responsibility for managing the risks associated with those relationships or complying with applicable requirements. Oversight should be commensurate with the nature, criticality, and risk of the relationship.

8. **Data and Technology Control Weaknesses**

The integrity of a compliance program depends on the quality and security of its underlying data and technology. Control weaknesses can include poor data governance that results in inaccurate or incomplete information for risk assessments and reporting, inadequate access controls that expose sensitive customer data, or a lack of disciplined change management for critical systems. As technology becomes more complex, institutions must ensure that their IT governance and control frameworks keep pace with emerging risks, including those related to cybersecurity and data privacy.

9. **Inadequate Documentation and Evidence**

During an examination, institutions may be asked to provide documentation and other evidence supporting their governance, risk management, control, and remediation activities. This requires maintaining sufficient documentation and evidence of key activities. A common gap is the failure to document governance meetings, risk-based decisions, the completion of corrective actions, or the results of independent testing. Insufficient documentation can make it more difficult to demonstrate how key activities were performed and how identified risks and issues were managed.

10. **Insufficient Preparation for the Examination Process**

Even an institution with a strong compliance program can falter during an exam if it is not prepared for the process itself. Insufficient preparation includes disorganized document production, unprepared management teams, and a failure to coordinate logistics with examiners. A well-managed examination process involves a central point of contact for all requests, a system for tracking submissions, and clear communication protocols. Preparing key personnel to speak knowledgably about their areas of responsibility helps demonstrate competence and a strong culture of compliance.

Preparing for Emerging Risks

A forward-looking compliance framework must also be able to incorporate emerging risks associated with new technologies and business models. The adoption of artificial intelligence (AI), for example, introduces unique considerations for governance, model risk management, and consumer protection. Rather than creating entirely separate compliance structures, a sound practice is to integrate these new risks into the institution's existing enterprise risk management framework. This involves updating risk assessments, policies, and testing protocols to address the specific challenges posed by these innovations. For example, the board should understand how AI risk is being governed within the organization's broader risk appetite, a topic explored in practical guides on AI governance for executive management.

The April 2026 interagency model risk management guidance, including SR 26-2, provides a risk-based framework for managing model risk. The guidance is nonbinding and does not establish enforceable standards or prescriptive requirements. It is expected to be most relevant to banking organizations with more than $30 billion in total assets, although it may also be relevant to smaller banking organizations with significant exposure to model risk. Generative and agentic AI are outside the scope of the guidance. Where third-party models are used, the nature and extent of due diligence, validation, monitoring, and other controls should be commensurate with the model's use and risk profile.

Conducting a Pre-Exam Readiness Assessment

A proactive readiness assessment allows an institution to identify and remediate potential gaps before an examination begins. This process is not a one-time event but a valuable exercise that can strengthen the overall risk and compliance framework. A practical approach includes several key steps:

- **Scope the Assessment:** Use the ten common gaps described above as a framework to evaluate key components of the compliance and risk management program, including governance, risk assessments, policies, training, monitoring, testing, and issue remediation. - **Prioritize Gaps:** Analyze the findings to distinguish between minor administrative errors and substantive control weaknesses. Prioritize gaps based on their potential risk to the institution, considering financial, reputational, and regulatory consequences. - **Assign Ownership and Establish Remediation Plans:** For each identified gap, assign a clear owner responsible for developing a corrective action plan. These plans should include specific, measurable actions, realistic timelines, and a description of the resources required for implementation. - **Track Progress and Validate Closure:** Establish a process for tracking the implementation of remediation plans. Before an issue is considered closed, the institution should establish an appropriate process for determining whether corrective actions have been implemented and whether the issue has been adequately addressed. Depending on the nature and significance of the issue, this may include independent validation.

Executive Takeaways

For senior management and the board, preparing for a regulatory examination is a critical governance function. The following considerations can help leaders assess their organization's readiness:

- Does our current risk assessment process accurately reflect the risks associated with all our products, services, and delivery channels, including those involving new technologies? - How do we gain assurance that our written policies and procedures are being followed consistently across the organization? - Is our board and management reporting sufficiently concise and risk-focused to enable effective oversight and timely decision-making? - Do we have a robust process for identifying the root causes of compliance issues and ensuring that corrective actions are both effective and sustainable? - Are our governance frameworks for third-party risk and emerging technologies integrated into our broader enterprise risk management program? - Have we designated clear lines of responsibility for managing the examination process itself to ensure it is handled in a coordinated and professional manner?

How Versapien Can Help

Versapien provides senior-led advisory services to help financial institutions strengthen their risk and compliance frameworks and prepare for regulatory examinations. Our experts assist clients with readiness assessments, reviews of compliance and risk management programs, and the remediation of identified issues. We offer specialized guidance in areas including governance and board reporting, independent testing, third-party risk management, and the integration of risks associated with emerging technologies like AI.