In the classic film “Apollo 13,” a team of engineers is tasked with solving life-threatening problems on the fly — using only the limited materials available in the spacecraft. Faced with mounting pressure and a shrinking timeline, they scramble to repurpose and adapt, driven by the mantra, “Failure is not an option.”Community financial institutions (CFIs) may not be orbiting Earth, but with continued refinements to CECL requirements and evolving compliance rules converging, institutions find themselves in a similar fix. There is one difference, though: the “Apollo 13” team had an entire team of engineers dedicated to helping them find a solution to their life-threatening problems. Unfortunately, the same isn't always true for CFIs tasked with adapting to the many changes impacting their CECL compliance efforts. For institutions doing CECL in-house, their teams may be stretched even thinner, making adjustments taxing and cumbersome. On the other hand, institutions using a vendor for CECL may wait weeks for vendor support. These challenges are magnified in a year marked by ever-evolving CECL rules and economic uncertainty. More CFIs are reevaluating their risk tools and migration plans to ensure compliance and a better operational fit. With regulators putting additional scrutiny on CECL processes and documentation, many institutions are discovering they’ve outgrown their current solutions or adopted systems that are more complex than necessary. CECL Compliance Remains Top of MindRegulatory bodies have zeroed in on CECL models at CFIs, raising the bar for model validation and the treatment of shifting asset classes. Regulators are carefully reviewing the methodologies and assumptions that underlie CECL estimates, especially as economic volatility continues to impact projections for interest rates, unemployment, and credit risk. CFIs are navigating ongoing CECL changes with the following considerations:
- Model validation matters. Ensuring models are built on sound methodology is critical, as regulators are rigorously testing assumptions about loss rates, economic scenarios, and the application to specific asset types. Institutions must document their approach and update it as needed to reflect current best practices.
- Staying abreast of regulatory change. With ongoing updates and evolving examiner expectations, CFIs must maintain flexibility in their CECL systems and processes. Periodic training and reviews can help identify gaps before they become exam findings.
- Economic environment requires agility. Scenario planning and sensitivity analysis are no longer optional — they are the norm.
Keys to Optimal Vendor SupportTimely access to knowledgeable support from CECL vendors and advisors is crucial — especially when internal teams face gaps in expertise or bandwidth.Key points to consider:
- Timeline needs. A lag in vendor/advisor help means critical questions can go unanswered for weeks, impacting compliance and operational efficiency.
- Mismatch between solution scope and needs. Some CFIs discover their systems are too basic or too robust, either hindering compliance or wasting resources. Periodic reviews can help ensure solutions still align with your institution’s current and future needs.
- Clear support expectations. It’s important to know what to expect regarding vendor response times and escalation procedures. Setting mutual expectations and maintaining open lines of communication will help you avoid surprises when support is needed most. Regular check-ins and review discussions can also help ensure you continue to receive the level of support your institution requires.
- Access to knowledgeable advisors. CFI staff may need a knowledgeable team of experts who can help them think through and make informed decisions. This access can be instrumental in preparing your staff to be ready for your institution’s exams and audits.
Best Practices for Migrating to New ToolsSwitching to new platforms or recalibrating existing systems doesn’t have to disrupt CECL compliance or other risk management needs. Some best practices include:
- Preparation and planning. Build a migration project team that includes representation from risk, finance, and IT. Identify institutional goals and regulatory requirements for the new solution.
- Data integrity and mapping. Clean and map your historical data before migration to prevent errors and gaps in future CECL calculations.
- Vendor demonstrations and training. Attend demos and insist on post-implementation training sessions — not just initial onboarding.
- Checklist approach for migration success:
- Assess fit. Review whether the new tool meets current and anticipated compliance objectives.
- Test thoroughly. Use scenarios and sample data to validate outputs before going live.
- Maintain documentation. Track all migration steps and decisions for future reference and audit.
- Monitor for ongoing support. Confirm post-migration support channels and escalation paths remain clear.
- Ensure advisors are included, especially for pre-exam and audit readiness. Set your staff up for success by assessing the knowledge of advisors with the solution. Look for advisors who are partners, who enjoy helping clients evaluate options, and have experience speaking confidently to regulators and auditors.
In a regulatory landscape where expectations aren’t standing still, CFIs can best meet the moment by proactively engaging with vendors and advisors to ensure support commitments are met, strategically reexamining risk and accounting tool needs as CECL requirements and economic conditions evolve, and approaching migration planning with standardized checklists and collaborative teams. By focusing on clear support standards, adaptable tools, and a continuous improvement mindset, CFIs can strengthen both compliance and resilience through whatever the future may bring.
