Why now is the time to strengthen your remediation program

The U.S. Securities and Exchange Commission, Federal Reserve, Office of the Comptroller of the Currency, and other enforcement entities have announced a recalibration of federal enforcement activity, staffing, and supervisory priorities. In this context, there is an opportunity to strengthen governance, validate remediation frameworks, and address identified issues in measured ways.

Defining the Terms: Voluntary vs. Involuntary Remediation

Customer remediation programs fall into two broad categories: voluntary and involuntary, each with varying regulatory exposure consequences.

Voluntary remediation is proactive. An error or control failure is identified internally, through an audit, an analysis of complaints, or routine review. The institution makes affected customers whole before the error or control failure becomes a matter for regulators to get involved in. Control over scope, timeline, communication, and method of repayment is managed in-house. When carried out well, proactive voluntary remediation efforts protect brand reputation, preserve customer trust and regulatory relationships, and position the institution more favorably.

Involuntary remediation is reactive, mandated by a regulatory body through a consent order or enforcement action following a finding of non-compliance or systemic failure. With involuntary remediation, the firm has less control over the process and timelines in addressing the issue. Proceedings may be a matter of public record. There can be significant legal, operational, and reputational costs.

Voluntary Remediation: The Proactive Path

When a financial institution identifies an error or a control failure on its own, it should actively manage remediation. By being proactive, the firm corrects the harm and stands on a better footing if and when regulators decide to get involved.

As a general matter in many cases, regulators may treat firms that get ahead of problems more favorably. Resolving issues internally as soon as errors are detected can demonstrate a culture of compliance.

Voluntary remediation comes down to three fundamentals: governance, execution, and communication:

• Governance: The foundation of effective voluntary remediation programs is infrastructure to catch problems early: detection controls, predefined response protocols, and standing escalation frameworks that get the right people engaged quickly. In the absence of these foundational tools, issues that could have been addressed early may drift. A voluntary remediation that stalls can become an involuntary one.
• Execution: Speed and accuracy matter. Identifying the full population of affected customers, determining appropriate remediation amounts, and delivering payment reliably are essential steps. Institutions should develop repeatable processes for managing the complexities.
• Communication: Clarity and consistency are important. Internal stakeholders across legal, compliance, operations, and product management need to speak with one voice on messaging and timing. A communication strategy that demonstrates control and transparency can be critical to avoiding unnecessary additional exposure.

Institutions best positioned to navigate what comes next build remediation into their operating model as a permanent capability rather than an episodic response to crises. That means having the governance, execution, and communication frameworks in place to move quickly.

To navigate what comes next, it's essential to build remediation into the operating model as a permanent capability rather than a response to a crisis, including:

• Technology infrastructure that leverages automation to do the heavy lifting, disbursing payments rapidly, while simultaneously tracking the status of every payment and mailed communication in real time. When checks go uncashed or payments need to be reissued, institutions need to spot cases quickly and take action.
• A centralized repository containing all remediation documentation — including details of every payment, communication, and exception, stored in one place and retrievable on demand — because there may be a need to produce documentation in the future.
• Comprehensive reporting across all active and completed cases, supporting internal audits and regulatory compliance reviews.

Involuntary Remediation: When Issues Escalate

When organizations do not define and execute their own remediation plans, errors and control issues may spin out of control. What could have been addressed early can quickly expand into a broader operational, compliance, and reputational challenge, with added costs and uncertainties to resolve it.

For institutions that have spent years building trust, the reputational exposure alone can exceed the financial penalties and shake confidence in all stakeholders.

Having a clear remediation plan in place helps organizations address issues earlier, retain greater control over the process, and reduce the risks and costs associated with escalation.

There Are Real Costs to Scaling Back Compliance Processes

Institutions that deprioritize remediation programs face two major vulnerabilities:

• The look-back risk: Examiners can decide to look for compliance gaps in the preceding period. The look-back window can last years.
• The state enforcement risk: State attorneys general and securities and banking regulators may pursue cases regardless of federal action — this trend will likely continue. "Some state agencies are hiring former CFPB officials from what some refer to as the 'CFPB diaspora,' bringing the bureau's aggressive tactics to the state level," Kate Berry wrote in a recent American Banker article.

The state-level patchwork of regulation and enforcement is a major challenge for compliance leaders. An institution operating across multiple states must navigate a complex compliance landscape. This is precisely why proactive remediation matters. When the rules vary by state and change without warning, institutions that are identifying and addressing compliance issues internally are better positioned to stay ahead.

Preparing for What Comes Next

Broadridge works with financial institutions to build and strengthen customer remediation programs — from design and execution to payment delivery and regulatory reporting. Connect with us to take the next step.