What is Exception Management?


Exception management is the process of monitoring missing documents or other important information. For banks, the bulk of exception management is focused on keeping loan files in proper order. Efficient loan exception management involves devising a system of identifying information that should be in a loan file and then tracking, reporting on, and resolving absent items. 

Managing the Particulars of Exception Management

Let’s examine the topic of exception management by considering the following “Ws”:

What needs to be tracked? What does the financial institution expect to see in a file that is not there? The difference between what exists and what is expected is an exception—and, that’s what needs to be tracked.

Who is responsible? Someone must first understand there is an exception and then decide who will acquire the document from the customer. The chain of responsibility can be viewed hierarchically:

  • At the top level is a senior compliance and/or lending executive that oversees the program in general
  • A loan department tracks and reports missing items
  • The lender, lending assistant, or loan administrator usually obtains documents by contacting customers

When is the item needed? Timing depends on the document. Is the document only placed in the file once, or will updated versions be required on an ongoing basis? A title policy or recorded deed of trust might be a one-time exception in the loan file, but financial statements for commercial loans will likely be required annually.

Why is exception management important? Financial institutions proactively track and resolve exceptions to ensure ongoing compliance and mitigate risk. Here are a few reasons why:

  • Failing to perfect a loan leaves no recourse to collect collateral if it defaults
  • Not tracking a homeowner’s insurance payment could result in a loss for the bank in the case of a fire
  • A borrower’s failure to pay taxes on real estate could lead to difficulty with public trustees or treasurers

Exception Management & Customer Service

Exception management is not only important for a bank’s compliance and safety/soundness. It also helps the bank deliver a higher level of customer service. Developing a scalable exception management process helps banks avoid undesirable situations, such as:

  • Making unnecessary requests for the same document from multiple departments or users
  • Requesting items at inappropriate times
  • Overwhelming customers with too many requests

Third-Party Exception Management Solutions

Financial institutions can use core-integrated tracking systems, such as AccuAccount, to effectively address their exception management and compliance concerns. Exception management software can also streamline audits and exams by memorializing good faith efforts to resolve exceptions. Notes can be entered directly into a file (i.e., phone call dates and times), and customer notices can be scanned into the system.

AccuAccount also clears exceptions as they are scanned, saving time and reducing the potential for oversights. Exceptions can be viewed and managed from a customer perspective, which brings transparency to items currently missing and those soon to expire—creating efficiencies for both the financial institution and the customer.

Exception Management Resources

Looking for more information about exception management and reporting at community banks? Check out our resource library for helpful whitepapers and spreadsheets that your bank can use to simplify exception management.

Browse our banking definitions page for more terminology.

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