financial services commission office of financial regulation

FINANCIAL SERVICES COMMISSION

Office of Financial Regulation

Long-Range Program Plan

2008 - 2013

Don Saxon Commissioner

OFR – Long-Range Program Plan 2008-2013 2

Table of Contents

Mission 3 Trends and Conditions Statement 3 Goals & Objectives 26 Service Outcomes/Projection Tables 34 Glossary of Terms and Acronyms 37 Exhibit II – Performance Measures & Standards 42 Exhibit III – Performance Measure Assessment 46 Exhibit IV – Performance Measure Validity & Reliability 81 Exhibit V – Associated Activities Contributing to Performance Measures 132 Exhibit VI – Agency-Level Unit Cost Summary 135


OFFICE OF FINANCIAL REGULATION MISSION

The Office of Financial Regulation is dedicated to safeguarding the private financial interests of the public by licensing, chartering, examining and regulating financial institutions and financial service companies in the State of Florida. The Office strives to protect consumers from financial fraud while preserving the integrity of Florida’s markets and financial service industries.

TRENDS & CONDITIONS In 2002, the Legislature created the Financial Services Commission (Commission), consisting of the Governor and the elected Cabinet. The Commission serves as agency head for the Office of Financial Regulation (OFR or Office) and the Office of Insurance Regulation (OIR). OFR and OIR are administratively housed within the Department of Financial Services, headed by the Chief Financial Officer. In support of the agency’s regulatory mission, in March 2007, the Office contracted with Accenture, LLP for implementation services related to the Regulatory Enforcement and Licensing (REAL) System. The REAL System Project reflects an office-wide effort to integrate the infrastructure and data of many of OFR’s licensing and enforcement functions. The project will provide OFR with an integrated financial regulatory management system by combining core processes for fiscal, licensing, investigations, examination, legal and complaint functions. The Legislature appropriated $7.7 million for Fiscal Year 2007-08 for the project. The Office will be requesting $3.2 million for Fiscal Year 2008-09. The Office has selected the following goals as priorities. The paragraphs immediately following each goal describe the trends and conditions that make these goals critical.


GOAL #1: Increase protection of citizens’ financial interests by bringing to bear the full extent of enforcement authority on those individuals or entities that conduct fraudulent or illegal financial services activities Three areas within the Office of Financial Regulation contribute to this goal. They are the Bureau of Financial Investigations, the Bureau of Finance Regulation and the Bureau of Securities Regulation. Bureau of Financial Investigations The Bureau of Financial Investigations (Financial Investigations) is a Criminal Justice Agency tasked with conducting investigations into fraudulent and unlicensed activity falling under the jurisdiction of OFR. Financial Investigations is committed to making the most effective use of its enforcement options which include obtaining receiverships and injunctions, filing administrative complaints and, where appropriate, referring cases for criminal prosecution. During Fiscal Year 2006-07, Financial Investigations completed 167 investigations involving over 10,200 victims and $171.5 million. Enforcement actions taken as a direct result of Financial Investigations’ activities led to $90.2 million in restitution being ordered or returned to victims, and criminal convictions resulting in defendants being sentenced to a total of over 271 years imprisonment and 113 years probation during the last fiscal year. Court ordered and voluntary victim restitution resulting from investigations conducted by Financial Investigations over the last five years totals over $877 million.

Restitution$877 Million Over 5 Years

$0

$100

$200

$300

$400

$500

Mill

ions

($)

Restitution $77,960,000 $70,752,000 $195,600,00 $443,345,45 $90,218,647.

FY 02-03 FY 03-04 FY 04-05 FY 05-06 FY 06-07


Bureau of Securities Regulation Starting in Fiscal Year 2007-08, the Bureau of Securities Regulation (Securities Regulation) changed how it classifies examinations. Prior to that time, Securities Regulation conducted “Routine” and “For-Cause” examinations. Rather than continuing to use those categories, Securities Regulation now categorizes activities as “Preliminary Inquiries,” “Compliance Examinations” and “Enforcement Examinations.” A Preliminary Inquiry is an examination activity that is designed to search for risks or “red flags” that suggest an increased probability that an event detrimental to investors might occur and to identify illegal conduct or issues that have occurred. If such “red flags” are found, an examination will be commenced. Compliance examinations will generally be commenced to gather information on identified risks, mitigate the risks through facilitating the way the firm or agent conducts business, and, if appropriate, take administrative action. Compliance examinations may evolve into enforcement examinations. Enforcement examinations will typically involve criminal activity, more egregious sales practice abuses, and will be broader in scope than compliance examinations. Securities examiners have also been classified as compliance and enforcement examiners. This classification will enable the examiners to concentrate on specific types of examinations so that their time and talents are used most efficiently. Enforcement examiners generally will be those examiners with more experience and analytical skills, thereby allowing enforcement examinations to proceed in a timely manner. Securities Regulation works closely with, and provides expertise to, the Federal Bureau of Investigation (FBI) and other law enforcement agencies to assist them with investigations and prosecutions of registered brokers, investment advisers and unregistered hedge fund managers. Securities Regulation will also continue to make use of all enforcement authority available, including filing administrative complaints and referring matters to criminal agencies for prosecution. During Fiscal Year 2006-07, Securities Regulation referred 11 examinations for enforcement action. Thirteen examinations were closed with final orders, including fines totaling $516,820. Additionally, five examinations were closed with criminal convictions. In preparation for the biggest retirement boom in history, Securities Regulation and other state regulators joined with the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) to protect seniors from predatory sales tactics and investment fraud. This group of regulators conducted on-site examinations of “free lunch” seminars to determine if presenters are appropriately supervised and if their sales practices are within the statutory guidelines. These seminars, held at hotels and restaurants, typically draw large crowds. Many seniors attend these functions and are often given a hard sell to persuade them to purchase risky or inappropriate financial


products. An estimated 75% of all investor complaints received by Securities Regulation are made by seniors. The report of the joint examination effort was made public on September 10, 2007. The report cited numerous findings from these “free lunch” seminar examinations including:

Firms used advertising and sales materials that may have been misleading or exaggerated, or included seemingly unwarranted claims.

Many broker-dealer firms did not submit their sales material to NASD for

review, as required.

Firms had poorly supervised these sales seminars.

Registered representatives or investment advisers holding the sales seminars had recommended investments that did not appear to be suitable for the individual customers.

Regulators have determined, and the Office agrees, that a high-powered, cooperative approach is needed due to the expectations that baby boomers will retire at unprecedented rates over the next 20 years. Bureau of Finance Regulation Florida is ranked #1 in the nation with respect to the number of funds (money) transmitters doing business in the State. Nationwide there are slightly more than 160,000 locations (stores) where money service business is conducted. Over 38,000 of these stores, or approximately 24% of the entire industry, are located and operating in Florida. In comparison, the State of New York, which ranks second overall, has approximately half the number of registered funds transmission companies compared to 173 in Florida. In an attempt to move currency undetected through the banking system or around the world to fund illegal activity or to avoid taxes, unscrupulous people and businesses have targeted the money transmitter industry for use. It is more important than ever that regulators attempt to detect and deter illegal activities through effective regulation. Federal laws such as the Bank Secrecy Act (BSA) and the anti-money laundering statutes have likewise placed increased record keeping and reporting requirements on this industry. To meet these demands, the Office will request six additional positions in its Fiscal Year 2007-08 Legislative Budget Request to promote increased consumer protection in the state. The FBI stated that mortgage fraud is the fastest growing white collar crime in the country. The Federal National Mortgage Association (Fannie Mae) listed Florida first in the nation as the place where mortgage fraud is occurring. Finance Regulation is already devoting approximately 73% of examiner time to combating mortgage fraud and predatory lending. Finance Regulation is proposing to


further attack this problem by increasing the number of examinations of licensed entities using a two-pronged approach. First, exams will be conducted of new licensees to provide education and improve their compliance at the beginning of their business operations in order to reduce the risk of fraudulent activity in the future. Second, exams will be targeted toward those licensed entities whose business practices reflect the greatest potential for fraudulent activity or predatory lending. It is projected that 75% of these examinations will result in agency action. To meet these demands, the Office will request six additional positions in its Fiscal Year 2008-09 Legislative Budget Request to promote increased consumer protection in the sub prime and predatory lending markets in the state.


GOAL #2: Ensure the safety and soundness of the state financial institution system All states in the United States, including Florida, operate under a dual-banking system. The term “dual banking system” refers to the dual state-national chartering and regulatory programs established in the United States for commercial banks and credit unions. It is a unique regulatory system that embodies the principle of checks-and-balances on power. It provides financial institutions a choice in state or federal chartering, creates a check on the regulator’s authority, reduces the potential for abusive or otherwise unwise actions, and promotes creativity. The “state” component of the dual banking system allows for local regulation, essentially bringing financial institution regulation closer to the citizens, their communities, and the financial institutions. Laws and regulations can be tailored to meet the particular needs of the communities, providing a more responsive system. The state component has promoted ingenuity in the development of products and services, including Automatic Teller Machines (known as ATMs), Negotiable Order of Withdrawal (NOW) accounts, equity loans, adjustable rate mortgages, and branching. State-chartered banks are generally community banks that provide individuals and local businesses with the competitive financial services they need. The accessibility and responsiveness of state regulators, who have a unique interest in and understanding of the needs of the citizens in the state in which they live and work, is not typically matched at the federal level. The Office surveys state financial institutions annually to determine if it is providing fair, balanced and responsive service to its customers, state chartered/licensed financial institutions. The following chart demonstrates the Office’s success in providing quality service to its customers:

State Exam Process is as Effective as Federal Exam Process

(Scale of 1- 5) 1=Strongly Agree 5=Strongly Disagree

2.025 1.952 2.1291.875 1.874 1.797

1

2

3

4

5FY 01/02 FY 02/03 FY 03/04 FY 04/05 FY 05/06 FY 06/07

Dis

agre

e ---

-> A

gree


As of September 2007, the Office is responsible for regulating 86 credit unions, 213 banks, 43 foreign banks and 14 trust companies with total assets that exceed $105 billion. Financial institutions are assigned a rating ranging from 1 (highest) to 5 (lowest) to reflect the soundness of management, the quality of loans or assets, and the overall operation. As of September 2007, 73% of all state financial institutions, representing 91% of all regulated assets, are rated in the highest two categories. There are eight State financial institutions under formal administrative action (Cease & Desist Orders).

Number of Active Administrative Actions 12/03 12/04 12/05 12/06 6/07

Document of Resolution 7 6 12 9 8 Board Resolution 6 5 8 7 11 Letter of Understanding and Agreement 3 4 1 1 2 Memorandum of Understanding 7 9 16 12 14 Written Agreement 1 2 0 2 2 Commitment Letter 0 1 3 4 2 Cease & Desist Order 4 5 5 4 8

Totals 28 32 45 39 47

The Office has seen an increase in the number of institutions that require more than routine supervision as demonstrated by the above chart, in part. This increase can also be attributed to the large number of new banks and banks with greater total assets.

New Banks Opened: 1996 - June 2007

172162

149

93 8766 59 59 58 54

020406080

100120140160180200

FL CA GA TX IL TN MN NC AZ VZ

# of

Ban

ks O

pene

d

The number of new state banks that have opened in Florida since 1996 is impressive. As seen in the above chart, Florida ranks first in the country in new bank charters issued. The following chart represents the substantial volume of de novo (new) application activity in Florida during the last ten years:


De Novo Applications Received

1113

19

15

1820

0

5

10

15

20

25

FY 01/02 FY 02/03 FY 03/04 FY 04/05 FY 05/06 FY 06/07

# of

App

licat

ions

Licensing activity requires the Office to expend significant staff resources. In 2005, the Office moved a Financial Specialist position into the licensing area to assist with workload, as well as to conduct more in-depth background checks of prospective applicants. The Fiscal Year 2006-07 budget included an additional position for the licensing area. The Office is required by statute to examine institutions at least once every three years. Thirty-three percent of state chartered banks are less than five years old and require more frequent examination and supervision. New banks are examined four times within their initial 18 months of operation, effectively tripling the Office’s workload. The number of state credit unions is declining due to mergers of small credit unions that do not have adequate fields of membership to foster needed expansion into larger credit unions. Significant increases in credit union assets during the last ten years were due to conversions of a number of federal credit unions to state-chartered credit unions. Federal credit unions that converted to state charter since 1997 represent 51% of regulated credit union assets. In recent years, there have been a number of consolidations and closings of Florida foreign bank offices and trust companies. Despite this trend, there has been an overall increase of 85% in regulated assets since 2000. Federal legislation such as the USA PATRIOT Act, anti-money laundering statutes and the Bank Secrecy Act (BSA) require significant examination resources due to the requirements imposed. More detailed examination requirements relating to anti-money laundering and the BSA have added 40 to 160 hours to each examination, with additional time required for problem situations.


The Division anticipates a significant loss of experienced examination staff in the next ten years:

49% of bank examination staff will reach normal retirement age (62) by 2017 41% will reach 30 years of state service by 2017, and 53% are age 50 or older.

The impending retirement of senior examination staff poses a significant concern with regard to the Office’s ability to ensure the on-going safety and soundness of the state financial institution system. Two new positions were authorized by the Legislature for Fiscal Year 2007-08. The Office intends to request authorization for an additional 18 positions to cover projected shortfalls during the next three year examination cycle. Authorization of these positions by the 2008 Legislature is essential because it takes two to three years for a new examiner to become fully functional and capable of serving as an Examiner-in-Charge of a financial institution examination. The Office continues to be challenged by an inability to attract and retain new staff that can be trained for management succession. Salaries and benefits are significantly lower than are paid by other state regulators, federal regulators, and the financial institution industry as a whole. Since 2000, 61 examiners representing 376 years of regulatory experience have resigned (non-retirees) to pursue employment opportunities with other regulatory agencies, the financial institution industry, other governmental agencies, and the private sector. During Fiscal Year 2006-07 alone, the Office lost 11 examiners with 57 years combined experience, representing a turnover rate of 14%. In the first two months of Fiscal Year 2007-08, the Office has lost six additional professional staff members representing 99 years of experience. The Office is looking at options to make employment as a financial institution examiner more attractive to prospective applicants as well as to make potential promotions in headquarters more appealing to existing employees in the regional offices. The Office has participated in a number of job fairs at universities throughout Florida to provide prospective college graduates with information about regulatory job opportunities with the Office. Although the program is meeting its statutorily mandated duties of examining and regulating state financial institutions, it has become increasingly difficult to meet internal goals as well as external timeframes. For example, under alternating examination agreements with federal regulators, every large bank must be examined every 12 months rather than once every 18 months. Also, de novo, or newly chartered, banks must be examined more frequently and require significantly more time to examine. As previously stated, examination requirements relating to anti-money laundering and the USA PATRIOT Act have added one to four 40-hour weeks to each examination.


Examiners to Assets Regulated

104.4 105.792.585.375.470.269.560.268.163.158.961.6

79

101

89

69 67 66 68 7068

81 80 83

50

60

70

80

90

100

110

120

FY95/96

FY96/97

FY97/98

FY98/99

FY99/00

FY00/01

FY01/02

FY02/03

FY03/04

FY04/05

FY05/06

FY06/07

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$

50

60

70

80

90

100

110

Exam

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Assets Examiners

As previously stated, the financial institution regulatory program needs additional staff to continue to meet statutory deadlines, comply with federal agreements, and adequately address new initiatives such as the USA PATRIOT Act. In December 1996, the program was adequately staffed with a total of 101 field examiners that examined 398 financial institution offices with combined assets of $61.6 billion. This equated to one examiner for every $610,000 in regulated assets. Knowing that federal nationwide interstate banking and branching legislation would result in a consolidation of financial institutions through interstate acquisitions and mergers, the program pro-actively reduced field examiner positions over the ensuing years. Despite the level of financial institution consolidation seen since 1996, the significant volume of de novo activity increased total regulated assets by 81% since 1996. Currently, the program regulates 356 state financial institutions with total assets in excess of $105 billion. Based on the Office’s current examiner staff of 83, this equates to one examiner for every $1.3 billion in regulated assets. The Office is operating with significantly less staff although it now regulates a comparable number of institutions with a larger asset base than was seen in 1996. Industry generated revenues are sufficient to support the needed manpower. The 2005 Legislature initially appropriated $1.3 million in funding for the Office to hire contract examiners to manage the shortfall in staffing. The 2006 and 2007 Legislatures have continued funding of this contract examiner program. Notwithstanding the shortfall in examination staff, the state banking system is healthy and competitive as represented by the number of applications for new state charters received. No Florida state-chartered financial institution has failed since March 1993.


Total Staff to Financial Institutions

398

380

362

373368 368 366 368

363354

363356

116111

185181

150

140134 132

126121

115

111

300

320

340

360

380

400

FY95/96

FY96/97

FY97/98

FY98/99

FY99/00

FY00/01

FY01/02

FY02/03

FY03/04

FY04/05

FY05/06

FY06/07

# of

Fin

anci

al In

stitu

tions

100

120

140

160

180

200

# of

Sta

ff

Institutions Staff

State, national and international economies are outside influences over which the Office has no control, but which have direct impact on the health of state institutions.


GOAL #3: Improve the efficiency and effectiveness of the financial services industry licensing process The Bureau of Regulatory Review – Finance and the Bureau of Regulatory Review – Securities contribute to this goal. Through these bureaus, the Office seeks to provide an environment conducive to capital development and growth of the securities, finance and money transmitter industries in the state, as well as providing protection for consumers from unregulated activities. To provide an acceptable level of service to the public, as well as to the industries regulated by the Office, the agency has embarked on a major project to transform the existing set of outdated systems and inefficient processes into a more modern information system to support key business processes and interaction with external entities. The Regulatory Enforcement and Licensing (REAL) System will provide the Office with an integrated financial regulatory management system by combining core processes for fiscal, licensing, investigations, examination, legal and complaint functions. It is the agency’s goal to procure a complete, installed, configured, and implemented licensing and enforcement solution. A contract between OFR and Accenture LLP was executed on March 12, 2007. Additionally, the new system will incorporate an imaging, workflow, and document management component to assist the agency in coming closer to a paperless regulatory processing and enforcement environment. With the first components of REAL expected to be deployed in February 2008, organizational change is inevitable. To address staffing for the scanning/imaging process, the Office intends to file a legislative budget request for Other Personal Service (OPS) funds during the transition period between the current system and the implementation of the REAL system. Currently, the Office performs scanning and imaging functions on licensing applications and correspondence at the end of the licensing process for certain license types. It is anticipated that implementation of REAL will re-direct scanning and imaging to the beginning of the process. With statutorily mandated processing timelines as outlined in the Administrative Procedures Act (Chapter 120, Florida Statutes), the Office must ensure that sufficient resources are available to perform this function in a timely manner. The REAL system will also address the agency’s initiative to improve public access to licensing information. The system will provide components that allow the public to: inquire about licensed entities and individuals; search and view final orders and declaratory statements; file complaints online; and access licensing reports. By making information readily available on-line, the efficiency of the program will be improved.


Bureau of Regulatory Review – Securities Currently, the Office regulates over 18,500 securities firms and associated branch offices, and 255,000 securities agents. Staff approved over 63,000 applications during Fiscal Year 2006-07. It is the objective of the Office to process applications, renewals and amendments in a timely fashion. Despite the significant growth in the Securities industry and a higher than normal staff turnover (28% in Fiscal Year 2006-07), the Securities Regulatory Review Bureau has maintained the efficiency of the application review process. While the number of applications received over the past five years has increased by slightly more than 11%, the average days to process has increased by less than one day.

Bureau of Regulatory Review - Securities

56,165

58,58659,596

65,073

63,193

5.334.874.475.07

4.84

50,000

52,000

54,000

56,000

58,000

60,000

62,000

64,000

66,000

02-03 03-04 04-05 05-06 06-07

Fiscal Year

# of

App

licat

ions

R

ecei

ved

0.00

2.00

4.00

6.00

8.00

10.00

Aver

age

Day

s to

Pro

cess

Applications Received Avg Days to Process

During 2006, the Legislature passed House Bill 7153, effective October 1, 2006, which authorized various statutory revisions to streamline and allow automation of the Office’s licensing functions. The bill provided the Office with the authority to revise many of its core business processes, leveraging technology-based solutions. The changes include:

Authorizing the Office to adopt rules that mandate electronic filing of forms and fees where the technology exists.

Authorizing the Office to mandate the use of the Investment Adviser

Registration Depository (IARD) system of the Financial Industry Regulatory Authority (FINRA, formally known as the National Association of Securities Dealers) for registration of investment advisers.


Mandating changes to the renewal cycle for securities branch registrations to coincide with the renewal cycles for all other securities registrations processed through the Central Registration Depository (CRD) system of FINRA.

The entities affected by these amendments include securities dealers and investment advisers. The administrative rules to implement these changes became effective on May 15, 2007. The approved legislative changes to utilize the CRD and IARD systems to their greatest capability, along with the implementation of the REAL system and process reengineering, will enable Securities Regulatory Review to continue improving the efficiency of the licensing process which will allow staff to focus more time on substantive review issues (e.g., applicants with disciplinary history) rather than just volume processing. This type of substantive review strengthens the Office’s position as a regulator and sends a message to industry that disregard for the law will not be tolerated. Achievement of this goal will be measured by the percentage of applicants not granted registration in the securities industry in Florida who subsequently are the subject of additional regulatory disclosure (50% in Fiscal Year 2006-07), and the number of actions taken as a result of licensing substantive review process (87 in Fiscal Year 2006-07). Over the next year, the Bureau of Regulatory Review - Securities will assess how it can more effectively monitor disciplinary updates received regarding licensed individuals. Further, it will evaluate the securities registration process and explore available technology to streamline this process. Bureau of Regulatory Review – Finance Currently, the Office regulates: over 35,000 money transmitters (including vendors); 82,000 mortgage brokers, businesses and lenders; 1,300 deferred presentment providers; and over 22,000 active licensees in consumer finance companies, retail installment sellers, and consumer and commercial debt collection. Staff approved over 30,623 applications during Fiscal Year 2006-07. House Bill 7153 also authorized various statutory revisions to streamline and allow automation of the Office’s finance licensing functions. The bill provided the Office with the authority to revise many of its core business processes, leveraging technology-based solutions. The changes include:

Authorizing the Office to adopt rules that mandate electronic filing of forms and fees.

Authorizing the Office to contract with a third party vendor to administer

the mortgage broker pre-licensing test.


Mandating that permitted Mortgage Business Schools electronically report the names of students who have successfully completed required mortgage broker training courses.

Authorizing the Office to change the renewal process for Money

Transmitters from a manual process that included a renewal application to a ministerial process that only requires payment of renewal fees.

The entities affected include: mortgage brokers; mortgage broker businesses and lenders; consumer finance companies; retail installment sellers; and money transmitters. The money transmitter administrative rules became effective on July 15, 2007. The administrative rules dealing with Chapters 516 (Consumer Finance) and 520 (Retail Installment Sales), Florida Statutes, were approved for publication by the Financial Services Commission on July 31, 2007 and the administrative rules to effect the changes associated with Chapter 494 (Mortgage Brokerage and Lending), Florida Statutes, were approved for publication by the Financial Services Commission on September 19, 2007. Recently, the Office implemented an electronic scanning and submission process for money transmitter and securities fingerprint card checks by the Florida Department of Law Enforcement (FDLE) and the Federal Bureau of Investigation (FBI) for processing. Previously, the Office used an outdated and inefficient modem process to submit data elements to the FDLE for finance license types. The Office has purchased the equipment needed for electronic submission and has finalized specifications for software modifications to eliminate manual data entry. Implementation of this process allowed the Office to: submit fingerprint card images for processing with FDLE and the FBI, and receive background responses within approximately 24-48 hours. The Office is awaiting administrative rule approval to implement this process for finance license types. The Office anticipates that implementation of the REAL System, coupled with the statutory changes and process reengineering, will ultimately result in a reduction in the average days to process finance applications. With these improvements, the licensing process will be more efficient which allows staff to focus on substantive issues rather than just volume processing. This type of substantive review strengthens the Office’s position as a regulator and sends a message to industry that disregard for the law will not be tolerated.


GOAL #4: Increase consumer confidence in the financial services industry An effective regulatory program is one of the fundamental objectives for the Office. To be effective, the Office strives to improve consumer confidence by providing consumer and industry outreach, conducting thorough compliance examinations, thorough review of consumer complaints; and taking swift enforcement action in the case of wrong-doing. This approach not only encourages compliance and punishes offenders, but also provides protection for the citizens of the State of Florida.

Consumer Outreach One of the Office’s main goals is to protect the investing public. Therefore, the Office is focusing efforts on combating a growing problem concerning financial and investment fraud against consumers. The first line of defense that a consumer has against financial and investment fraud is education. Financial education fosters financial stability for individuals and for entire communities. The more people know about credit, banking, and investing, the more likely they are to increase savings, buy homes and improve their financial health and well being, and not become a victim of financial or investment fraud. The Office’s first new outreach program began in 2005 with Florida Seniors Against Investment Fraud, teaching over 3000 senior citizens how to protect themselves against investment fraud. Since 2005 our outreach efforts have expanded by adding three additional programs: FDIC Money Smarts, Basics of Savings and Investing, and Investor University on Base. As of August 2007, over 9,500 consumers have participated in OFR investor education and protection programs. In the fall of 2007, the Office will introduce a new program, Investor Education @ your library, in nine Florida cities. This program provides free non-commercial investor education at 15 different public libraries. In addition to outreach educational programs, the Office continues to provide consumers with current non-commercial financial and investing resources via the internet. Our website, www.flofr.com offers a range of information regarding banking, finance and securities issues.

Industry Outreach The Office is also focusing its efforts on providing information through outreach programs to the industries we regulate. These types of industry outreach programs improve compliance by educating the industries regulated by the Office. These programs are conducted by all of the Office’s Divisions:


Division of Finance - The Bureau of Finance Regulation offers presentations to various industry groups at the state and local levels. These involve specifics on statutes and rules which form the Division’s regulatory authority and informs attendees about the types of violations typically found during an examination by the Office. Division of Securities - The Bureau of Securities Regulation makes presentations at various industry compliance seminars. Topics focus on issues related to securities dealers and investment advisers, and informs participants about the types of regulatory concerns identified during examinations. Division of Financial Institutions – The Division of Financial Institutions continues its outreach program that strives to serves both the general public and the financial institution industry. Staff is available to make presentations before a variety of organizations. With respect to the financial institution industry, the Office conducts periodic seminars for new financial institution directors. In addition, the Office has made presentations at the Florida Bankers Association's Annual Meeting, at the Florida Credit Union League's Governmental Affairs Committee Meeting, and at the Annual Meeting of the Florida Credit Union League. Plans for additional outreach efforts are being formulated with the Florida International Bankers Association (FIBA) and others.

Examinations The examination programs for the Securities, Finance and Money Transmitter industries continue to evolve as the Office moves toward greater use of technology in the targeting, analysis and management of compliance examination activities. Examinations for all areas now require more intensive on-site procedures and a higher-level review and approval process prior to finalization. Monthly statistics are compiled to provide management with needed information for follow-up and action on examinations to ensure a thorough and timely process. The new processes have resulted in a more effective program. For instance, the examination activities of the Division of Finance and the Division of Securities resulted in $639,059 and $1,391,816 assessed in enforcement fines for Fiscal Year 2006-07, respectively. Improved technology will provide an integrated, automated and mobile approach to tracking and managing examination activities through development of automated examination modules, as well as utilization of the REAL system. While examinations have become more complex in nature and tend to require greater time for completion, the automated modules will assist examiners in accessing and compiling required pre-examination information and provide a means to transfer data from the REAL System to a laptop for on-site examinations and subsequently upload data retrieved on-site back to the REAL System. The data will then be used to aid in preparing examination reports. The workflow component of REAL will further support timely access to the


examination report and supporting information for review and approval by management and legal staff. This will contribute to more timely completion of examinations and allow better resource allocation when and where needed. Bureau of Finance Regulation Currently, there are over 115,000 active Finance licensees including licensed individuals, firms and branches conducting business as mortgage brokers, businesses and lenders, consumer finance companies, retail installment sellers, and title loan companies - companies that touch the life of virtually every consumer in Florida by financing homes, cars, and home improvements, and dealing with personal, family and business financial transactions. The agency also regulates over 38,000 active money transmitters, including vendors. The services provided by these money transmitter firms and vendors include cashing paychecks, sending money to family around the world, paying their bills with money orders, and obtaining small short-term loans. In light of the number of licensed and registered entities, it is imperative Finance Regulation continues to develop more efficient and effective ways of ensuring compliance.

Finance RegulationLicensed Firms and Branches Compared to Examiners

73,64272,165

59,31663,243

3946

4854

0

10,000

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30,000

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Licensees Examiners

A recent survey by the Office found a large number of mortgage lenders are servicing loans for private investors, and possibly selling unregistered securities to investors. The Office believes this is an area where there is a significant potential for mortgage and securities fraud. Additionally, examinations need to be conducted on companies engaged in potentially predatory lending practices. Areas of concern that need to be reviewed include inflated appraisals, falsified income, high-pressure sales tactics, bait and switch tactics (change of terms at


closing), unsupported fees in the servicing of loans, straw buyers, loans made without evaluation of the borrower’s ability to repay, non-disclosure of the interest rate and fees, targeting persons who are not financially sophisticated, loan terms that make it difficult for the borrower to reduce their indebtedness, and repeat refinancing without benefit to the borrower. During Fiscal Year 2006-07, the Office entered into a cooperative examination agreement with 36 other state regulators of Money Transmitters. Active registered firms in the Money Transmitter industry in Florida have grown 98% over the last five years. This agreement pools regulatory resources from multiple states to more efficiently and effectively regulate the Money Transmitter industry nationwide by conducting joint examinations. The goal of this effort is the production of a single examination report that can be shared by all participating member states. The efforts of this joint examination approach will: promote a “best practices” regulatory environment nationwide; lead to more uniform regulation across the nation; and ultimately reduce the regulatory hurdles faced by this industry. Bureau of Securities Regulation In the Securities industry, the Office has over 18,500 firms and branches and over 255,000 individual agents actively registered. These registrants deal almost exclusively with small investors in the State of Florida. The federal securities regulators and self-regulatory organizations (i.e., SEC and NASD), focus primarily on national market issues and the financial condition of firms. The Office focuses its efforts primarily on protecting small investors by dealing with complaints, abusive sales practice issues and consumer awareness. As discussed previously, Securities Regulation has implemented a new classification system (i.e., compliance and enforcement) for its examinations and examiners. Compliance examiners will concentrate their activities on reviewing consumer complaints and conducting compliance examinations. The goal of the compliance examination will be to: gather information on the identified risk; mitigate the risk through facilitating changes in the way the broker dealer, investment adviser, or agent operates; and, if appropriate, take administrative action. Compliance examiners are also expected to complete their review of consumer complaints within 180 days or initiate an examination of the firm or associated person. Again, the classification system is expected to allow the review of customer complaints and compliance examinations to proceed in a timely manner, thereby furthering the confidence of the investing public. Due to the increased number of registrants and the relatively unchanged level of staffing, Securities Regulation has employed an analytical approach in targeting examinations. All examinations will be conducted on a risk-based approach using information obtained from other regulatory agencies (CRD and IARD), complaints, and public sources such as advertisements and seminar invitations.


Securities Regulation Licensed Entities Compared to Examiners

12,450 12,639

15,195 15,87317,432

4847474644

02,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

FY 02/03 FY 03/04 FY 04/05 FY 05/06 FY 06/07

# of

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Bra

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s

0102030405060708090100

# of

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Registered Firms and Branches Number of Examiners

Complaints

In today’s business world, the Internet and various media sources give consumers greater access to financial information. With this access comes the potential for fraudulent activities. Beginning in fourth quarter 2007, consumers will be able to file complaints involving financial service entities and financial products through OFR’s website, www.flofr.com. These complaints will be sent to the regional offices that are in the best location to assist in the complaint review process. In cases where the complaint review discloses potential statute or rule violations, the complaint can be converted to a full-scale examination. Bureau of Finance Regulation During Fiscal Year 2006-07, Finance Regulation worked 751 financial service industry industry-related complaints. Of these, approximately 50%, or 373, complaints warranted internal referral for further action. Bureau of Securities Regulation During Fiscal Year 2006-07, Securities Regulation received 301 securities-related complaints; 105 complaints warranted internal referral for further action. In the Bureau of Securities Regulation’s new examination process, complaints are to be closed or referred to an examination within 180 days. This will require the compliance examiners to resolve the complaint or refer the complaint to an examination on a timely basis.


Staff Training

A well-trained examination staff is one of OFR’s strongest tools. Due to the ever-increasing complexity of financial products, the Office will continue its efforts to enhance staff training by ensuring that a variety of options are available. Bureau of Finance Regulation The Office conducts annual training programs for the Finance and Money Transmitter examination functions, while also providing opportunities for staff to participate in training sponsored by national and/or state operated organizations such as the Money Transmitter Regulatory Association (MTRA), National Association of Consumer Credit Administrators (NACCA), and the Florida Association of Mortgage Brokers (FAMB). Finance Regulation is beginning to use the web-based training tool Blackboard as a training option for internal staff. Bureau of Securities Regulation The Office conducts annual training programs for the Securities examination staff, and also provides opportunities for staff to participate in training sponsored by national and/or state operated organizations such as the North American Securities Administrators Association (NASAA). Securities Regulation implemented a supplemental training program for new examiners during Fiscal Year 2005-06. This new training program is conducted mid-fiscal year and is intended to strengthen the current annual training program. This in-house training will be conducted in each fiscal year to further ensure that Securities Regulation meets its mission of ensuring compliance with the rules and regulations of the Florida Securities and Investor Protection Act. Securities Regulation has used the web-based training tool Blackboard since 2001 as a training option for staff. This tool has since been expanded to include other office staff, as well as establishing a partnership to provide access to staff in the Department of Financial Services and the NASAA membership. Blackboard is available “on demand” and allows staff the opportunity to complete training at their own pace without the need for on-site instructors. Upon completion of a course, staff is required to take an automated assessment to demonstrate proficiency in the area studied. Management can access reports at any time that provide updates on an employee’s progress. Securities Regulation has also entered into an agreement with the Financial Industry Regulatory Authority (FINRA) to allow securities examiners to enroll in on-line training courses at a reduced rate. FINRA consulted industry subject matter experts and drew from their own regulatory experience to develop the compliance education courses. Topics are timely and provide 30-minute modules featuring decision-based learning scenarios. Examiners have a year to complete the courses.


Securities Regulation, in coordination with NASAA, is in the process of updating the automated examination modules currently used by the bureau and other state securities regulators. The modules allow on-site entry of examination documentation and findings, thus supporting the timely completion of examinations. The enhancements will provide uniformity of examination questions nationally, reduce the examiners’ learning curve and provide important statistics to management by utilizing a database version of the software.

Technology In support of the agency’s regulatory mission, the Office is developing the Regulatory Enforcement and Licensing (REAL) System. The project will provide the Office with an integrated financial regulatory management system by combining core processes for fiscal, licensing, investigations, examination, legal and complaint functions. A primary requirement for the development is the inclusion of a data warehouse feature, which will allow the examination program to utilize risk-based targeting techniques to identify entities to examine. The Office cannot conduct in-depth examinations of every licensed entity and individual under its regulatory jurisdiction, thus the agency will focus on the highest-risk entities and the highest-risk compliance issues as part of its overall scheme for regulation. Identification of these entities and issues will not only support the examination program but will also allow the agency to focus its consumer awareness and industry outreach activities where needed most. The REAL System will also provide a means for the agency to receive complaints electronically via the web. The workflow component of REAL will allow complaints to enter the review process in a timely manner, thus providing staff the opportunity to provide a faster response to the consumer. The project will also provide a means for examination staff to transfer data from the REAL System to a laptop for on-site examinations and subsequently upload data retrieved on-site back to the REAL System. The data will then be used in preparing an examination report. The workflow component of REAL will further support timely access to the examination report for review and approval by management and legal staff.


GOAL #5: Support efforts to promote Florida’s domestic and international financial institutions Interstate banking has evolved in three distinct phases, starting in the 1980s with Regional Interstate Banking where banking companies within a region merged to create larger banks; regional expansion under state laws containing a National Trigger permitting mergers with banks in any other state after a certain date; and nationwide interstate banking. The Riegle-Neal Interstate Banking and Branching Efficiency Act permitted well-capitalized banks to acquire banks anywhere in the United States after October 1, 1995. Currently, out-of-state financial institutions control 58% of Florida’s financial institution deposits. As a result of the USA Patriot Act and economic conditions in North and South America and Asia, numerous international bank offices have closed. The consolidation of international bank offices and transfer of assets to other states has resulted in the loss of potential lending opportunities for citizens and businesses in Florida. During Fiscal Year 2006-07, four international banks received licenses to operate international offices in Florida. The Office continues its outreach program that strives to serves both the general public and the financial institution industry. Staff is available to make presentations before a variety of organizations. With respect to the financial institution industry, the Office conducts periodic seminars for new financial institution directors. In addition, the Office has made presentations at the Florida Bankers Association's Annual Meeting, the Florida Credit Union League's Governmental Affairs Committee Meeting, and the Annual Meeting of the Florida Credit Union League. Plans for additional outreach efforts are being formulated with the Florida International Bankers Association (FIBA) and others. Seventy-seven percent of all new bank charters issued in Florida during Fiscal Year 2006-07 were state charters and approximately 236 de novo state financial institution applications (banks, credit unions, trust companies and international offices) have been filed since January 1996. Florida’s domestic and international financial services industries still need the support of state leaders to ensure the State financial institution system remains strong, safe and sound.


PRIORITIZATION OF GOALS AND OBJECTIVES GOAL #1: Increase protection of citizens’ financial interests by bringing to bear the full extent of enforcement authority on those individuals or entities that conduct fraudulent or illegal financial services activities. OBJECTIVE 1A: Increase percentage of financial investigations completed that result in administrative, civil and/or criminal action against individuals or entities that conduct fraudulent or illegal financial services activities OUTCOME 1A: Percentage of investigative case referrals that result in enforcement action

Baseline Year 2007-2008

FY 2008-09 Projected

FY 2009-010Projected




80% 81% 82% 83% 84% 85% OBJECTIVE 1B: Increase percentage of financial investigations referred for administrative, civil and criminal convictions against individuals or entities that conduct fraudulent or illegal financial services activities OUTCOME 1B: Percentage of documented violations referred for action

Baseline FY 07-08


FY 2009-010Projected




95% 95% 95% 95% 95% 95% OBJECTIVE 1C: Increase the percentage of securities enforcement examination referrals that result in enforcement action OUTCOME 1C: Percentage of securities enforcement referrals that result in enforcement action Baseline Year

2007-08 FY 2008-09 Projected





75% 75% 76% 76% 77% 77% OBJECTIVE 1D: Increase the percentage of finance for-cause examinations that result in agency action OUTCOME 1D: Percentage of Finance for-cause examinations resulting in agency action Baseline Year

2007-08 FY 2008-09 Projected





75% 76% 77% 78% 79% 80%


GOAL #2: Ensure the safety and soundness of the state financial institution system OBJECTIVE 2A: Examine all state financial institutions within statutory timeframes OUTCOME 2A: Percentage of state financial institutions examined within the last 18 and 36 months







50%/100% 50%/100% 50%/100% 50%/100% 50%/100% 50%/100% OBJECTIVE 2B: Perform more frequent examinations of new, large or problem institutions OUTCOME 2B: Percentage of new financial institutions examined three times in the first two years







100% 100% 100% 100% 100% 100%

OBJECTIVE 2C: Ensure all state financial institutions under formal administrative action timely comply with the order OUTCOME 2C: Percentage of state financial institutions in substantial compliance with formal administrative action







20% 75% 75% 75% 75% 75%

OBJECTIVE 2D: Attract and retain new staff OUTCOME 2D: Percentage of positions vacant







10% 16% 10% 8% 6% 4%


GOAL #3: Improve the efficiency and effectiveness of the financial services industry licensing process OBJECTIVE 3A: Process securities license applications within the standards prescribed by the Administrative Procedures Act OUTCOME 3A: Percentage of securities license applications processed within Administrative Procedure Act requirements







100% 100% 100% 100% 100% 100% OBJECTIVE 3B: Process securities filing requests within a designated standard number of days OUTCOME 3B: Percentage of securities filing requests processed within a designated standard number of days (standard based on type of filing)







90% 90% 90% 90% 90% 90% OBJECTIVE 3C: Improve the effectiveness of our licensing program by monitoring the number of applicants not granted registration in the securities industry in Florida who subsequently become registered in other jurisdictions and report additional disclosure events OUTCOME 3C: Percentage of applicants not granted registration in the securities industry in Florida who subsequently are the subject of additional regulatory disclosure







45% 45% 46% 46% 47% 47% OBJECTIVE 3D: Improve the efficiency and effectiveness of the securities licensing program to provide more time for substantive review OUTCOME 3D: Number of actions taken as a result of a securities licensing substantive review process







75 75 76 76 77 77


OBJECTIVE 3E: Process finance license applications within the standards prescribed by the Administrative Procedures Act OUTCOME 3E: Percentage of finance license applications processed within Administrative Procedure Act requirements







100% 100% 100% 100% 100% 100% OBJECTIVE 3F: Process finance filing requests within a designated standard number of days OUTCOME 3F: Percentage of finance filing requests processed within a designated standard number of days (standard based on type of filing)







90% 90% 90% 90% 90% 90% OBJECTIVE 3G: Improve the efficiency and effectiveness of the finance licensing program to provide for a more substantive review OUTCOME 3G: Number of actions taken as a result of a finance licensing substantive review process







125 125 125 125 125 125 GOAL #4: Increase consumer confidence in the financial services industry OBJECTIVE 4A: Conduct thorough and timely reviews of securities complaints OUTCOME 4A: Increase percentage of securities complaints closed or referred to a compliance or enforcement examination within 180 days Baseline Year

2007-08 FY 2008-09 Projected





90% 90% 91% 91% 92% 92%


OBJECTIVE 4B: Improve investor and consumer protection through increased consumer outreach programs OUTCOME 4B-1: Increase number of consumer outreach programs conducted by securities staff to promote investor protection, and assist consumers in making sound financial decisions Baseline Year

2007-08 FY 2008-09 Projected





25 25 30 30 30 35 OUTCOME 4B-2: Increase number of consumer outreach programs conducted by Finance staff to provide consumers with information to make informed decisions regarding financial transactions Baseline Year

2007-08 FY 2008-09 Projected





25 25 30 30 30 35 OBJECTIVE 4C: Improve compliance with securities laws and regulations by educating dealers and investment advisers on regulatory requirements OUTCOME 4C-1: Increase number of industry outreach programs conducted by Securities staff to educate the industry on compliance issues Baseline Year

2007-08 FY 2008-09 Projected





5 5 6 6 7 7 OUTCOME 4C-2: Increase number of industry outreach programs conducted by Finance staff to educate the industry on compliance issues and provide training for continuing education requirements. Baseline Year

2007-08 FY 2008-09 Projected





8 10 10 12 12 15 OBJECTIVE 4D: Improve the securities examination process through the effective use of risk-based targeting techniques OUTCOME 4D-1: Increase percentage of securities compliance examinations closed, referred to the Office of Legal Services or referred to enforcement examinations within 180 days Baseline Year

2007-08 FY 2008-09 Projected





75% 75% 76% 76% 77% 77%


OUTCOME 4D-2: Increase percentage of securities compliance examinations resulting in action Baseline Year

2007-08 FY 2008-09 Projected





30% 30% 31% 31% 32% 32% OUTCOME 4D-3: Increase number of securities compliance examinations completed Baseline Year

2007-08 FY 2008-09 Projected





130 130 135 135 140 140 OUTCOME 4D-4: Increase percentage of finance licensees examined on a routine basis where agency action is taken against the licensee for violations Baseline Year

2007-08 FY 2008-09 Projected





75% 75% 76% 76% 77% 77% OBJECTIVE 4E: Provide an integrated, automated and mobile approach to tracking and managing examination activities through the development of automated examination modules as well as utilization of the REAL system OUTCOME 4E-1: Increase number of securities compliance examinations completed Baseline Year

2007-08 FY 2008-09 Projected





130 130 135 135 140 140 OUTCOME 4E-2: Increase number of finance routine examinations completed Baseline Year

2007-08 FY 2008-09 Projected





197 197 207 207 217 217 OUTCOME 4E-3: Increase number of finance for-cause examinations completed Baseline Year

2007-08 FY 2008-09 Projected





206 206 216 216 227 227


GOAL #5: Support efforts to promote Florida’s domestic and international financial institutions OBJECTIVE 5A: Increase percentage of deposits held by domestic banks domiciled in Florida OUTCOME 5A: Percentage of bank deposits controlled by Florida-based banks







30% >35% >40% >40% >40% >40% OBJECTIVE 5B: Increase number of foreign bank offices operating in Florida OUTCOME 5B: Percentage increase in number of licensed foreign bank offices







-7% 2% 2% 2% 2% 2%

OBJECTIVE 5C: Increase level of foreign bank assets held in state licensed foreign bank offices OUTCOME 5C: Percentage increase in assets of foreign bank offices







-4% 5% 5% 5% 5% 5% OBJECTIVE 5D: Meet statutory goals relating to financial institution licensing OUTCOME 5D: Percentage of applications processed within statutory timeframes







100% 100% 100% 100% 100% 100%


OBJECTIVE 5E: Continue to provide fair, balanced and responsive service to our customers, state chartered/licensed financial institutions OUTCOME 5E: Percentage of financial institution surveys giving OFR a rating of 2 or better (1 highest, 5 lowest)







77% 75% 75% 75% 75% 75%


SERVICE OUTCOMES

Program: Financial Services Commission/Office of Financial Regulation 43900530 Safety and Soundness of State Banking System This service is responsible for reviewing and approving or denying financial institution charter applications and regulating financial institutions including: state banks, savings banks, associations, trust companies, credit unions, and international banking agencies, representative offices, administrative offices, and branches. Other functions performed include conducting research on financial depository institutions and providing information to the public. The financial institution regulatory structure within the United States is a dual-banking system. Service Outcome: Percentage of applications for new Florida financial institutions that seek state charters






67% 67% 67% 67% 67% 43900540 Financial Investigations This service protects consumers of the banking, finance and securities industries and the public from illegal financial activities. The Bureau of Financial Investigations conducts financial investigations of alleged fraudulent or illegal financial activities by licensed or unlicensed entities. If violations are found and sufficient documented evidence is obtained, the Bureau refers the investigation for administrative, civil or criminal actions, as appropriate. Once an investigative case is accepted for enforcement, the investigators provide full investigative support as needed. This service outcome is calculated after all enforcement action is completed and the investigation is closed. Service Outcome: Percentage of investigative case referrals that result in enforcement action.

FY 2007-08 FY 2008-9 FY 2009-10 FY 2010-11 FY 2011-12 80%% 81% 82% 83% 84%


43900550 Executive Direction and Support Services This service provides overall direction in carrying out the Office of Financial Regulation’s statutory and administrative responsibilities. The Commissioner and support staff provide leadership, direction and executive guidance to all line and staff units and provide some administrative responsibilities such as property inventory, public records, personnel, budget and legal support. Service Outcome: Administrative costs (excluding Office of Legal Services) as a percent of total program costs






3% 3% 3% 3% 3%

43900560 Finance Regulation This service protects Florida’s public from illegal activity by the Division’s regulated entities while facilitating public trust in the State. Finance Regulation conducts examinations of the mortgage lending industry including mortgage brokers, motor vehicle sellers, retail sellers, home improvement companies, sales finance companies, small loan companies, title loan companies, money transmitters, check cashiers, and deferred payment presenters, as well as their branch offices and associated persons. As part of the regulatory function, Finance Regulation conducts for cause examinations, which typically involve criminal activity, more egregious sales practice abuses, and are broader in scope than routine examinations. If violations are found, the documented examinations will be referred for administrative, civil or criminal actions, as appropriate. This service outcome is calculated after all enforcement action is completed and the examination is closed. OUTCOME: Percentage of licensees examined where agency action is taken Baseline Year

2007-08 FY 2008-09 Projected





75% 75% 76% 76% 77% 77% This service also ensures the timely processing of all applications and compliance filings required by state statutes and rules. This furthers the agency’s mission to support the regulated industries by providing a timely service to these entities and individuals who are entering into their respective industry and workforce.


OUTCOME: Percentage of finance license applications processed within Administrative Procedure Act requirements







100% 100% 100% 100% 100% 100% 43900570 Securities Regulation This service protects Florida’s investing public from illegal securities activity while facilitating capital formation in the State. Securities Regulation conducts examinations of registered securities dealers and investment advisers, as well as their branch offices and associated persons. As part of the regulatory function, Securities Regulation conducts enforcement examinations, which typically involve criminal activity, more egregious sales practice abuses, and are broader in scope that compliance examinations. If violations are found, the documented examinations will be referred for administrative, civil or criminal actions, as appropriate. This service outcome is calculated after all enforcement action is completed and the examination is closed. Service Outcome: Percentage of enforcement examination referrals that result in enforcement action Baseline Year

2007-08 FY 2008-09 Projected





75% 75% 76% 76% 77% 77%

This service provides an environment conducive to capital development and growth of the securities industry in the state, as well as providing protection for consumers from unregulated or illegal activities. The Office evaluates and processes Securities registration applications.

OUTCOME: Percentage of securities license applications processed within Administrative Procedure Act requirements







100% 100% 100% 100% 100% 100%


Glossary of Terms and Acronyms Activity - A set of transactions within a budget entity that translates inputs into outputs using resources in response to a business requirement. Sequences of activities in logical combinations form services. Unit cost information is determined using the outputs of activities AFM – Area Financial Manager ATS – Activity Tracking System Baseline Data - Indicators of a state agency’s current performance level, pursuant to guidelines established by the Executive Office of the Governor in consultation with legislative appropriations and appropriate substantive committees BSA – Bank Secrecy Act Budget Entity - A unit or function at the lowest level to which funds are specifically appropriated in the appropriations act. “Budget entity” and “service” have the same meaning CFO - Chief Financial Officer CRD – Central Registration Depository De Novo Bank - a newly chartered bank DFS – Department of Financial Services – provides administrative and information systems support to the Office of Financial Regulation DLS – Departmental Licensing System DOGI – Division of Financial Institutions’ Database of General Information EOG - Executive Office of the Governor Estimated Expenditures - Includes the amount estimated to be expended during the current fiscal year. These amounts will be computer generated based on the current year appropriations adjusted for vetoes and special appropriations bills FAC - Florida Administrative Code FDIC – Federal Deposit Insurance Corporation FINRA - Financial Industry Regulatory Authority


FS - Florida Statutes FSAIF – Florida Seniors Against Investment Fraud FSC - Financial Services Commission – composed of the Governor, the Attorney General, the Chief Financial Officer, and the Commissioner of Agriculture FTE - Full Time Equivalent FY - Fiscal Year GAA - General Appropriations Act GR - General Revenue Fund HR - Human Resource IARD – Investment Adviser Registration Depository IG - Inspector General Indicator - A single quantitative or qualitative statement that reports information about the nature of a condition, entity or activity. This term is used commonly as a synonym for the word “measure” Information Technology Resources - Includes data processing-related hardware, software, services, telecommunications, supplies, personnel, facility resources, maintenance, and training Input - See Performance Measure IT - Information Technology LBC - Legislative Budget Commission - a standing joint committee of the Legislature. The Commission was created to: review and approve/disapprove agency requests to amend original approved budgets; review agency spending plans; and take other actions related to the fiscal matters of the state, as authorized in statute. It is composed of 14 members appointed by the President of the Senate and by the Speaker of the House of Representatives to two-year terms, running from the organization of one Legislature to the organization of the next Legislature LBR - Legislative Budget Request Legislative Budget Request - A request to the Legislature, filed pursuant to section 216.023, Florida Statutes, or supplemental detailed requests filed with


the Legislature, for the amounts of money an agency or branch of government believes will be needed to perform the functions that it is authorized, or which it is requesting authorization by law, to perform LRPP - Long-Range Program Plan - a plan developed on an annual basis by each state agency that is policy-based, priority-driven, accountable, and developed through careful examination and justification of all programs and their associated costs. Each plan is developed by examining the needs of agency customers and clients and proposing programs and associated costs to address those needs based on state priorities as established by law, the agency mission, and legislative authorization. The plan provides the framework and context for preparing the legislative budget request and includes performance indicators for evaluating the impact of programs and agency performance Narrative - Justification for each service and activity is required at the program component detail level. Explanation, in many instances, will be required to provide a full understanding of how the dollar requirements were computed NASAA – North American Securities Administrators Association NASD – National Association of Securities Dealers NCUA – National Credit Union Association Nonrecurring - Expenditure or revenue which is not expected to be needed or available after the current fiscal year OCC – Office of the Comptroller of the Currency OCO - Operating Capital Outlay OIR – Office of Insurance Regulation OFR – Office of Financial Regulation OPB - Office of Policy and Budget, Executive Office of the Governor OPS - Other Personal Services Outcome - See Performance Measure Output - See Performance Measure Outsourcing - Describes situations where the state retains responsibility for the service, but contracts outside of state government for its delivery. Outsourcing


includes everything from contracting for minor administration tasks to contracting for major portions of activities or services which support the agency mission PBPB/PB2 - Performance-Based Program Budgeting Performance Ledger - The official compilation of information about state agency performance-based programs and measures, including approved programs, approved outputs and outcomes, baseline data, approved standards for each performance measure and any approved adjustments thereto, as well as actual agency performance for each measure Performance Measure - A quantitative or qualitative indicator used to assess state agency performance

• Input means the quantities of resources used to produce goods or services and the demand for those goods and services

• Outcome means an indicator of the actual impact or public benefit of a service

• Output means the actual service or product delivered by a state agency Policy Area – is a grouping of related activities to meet the needs of customers or clients which reflects major statewide priorities. Policy areas summarize data at a statewide level by using the first two digits of the ten-digit LAS/PBS program component code. Data collection will sum across state agencies when using this statewide code Privatization - Occurs when the state relinquishes its responsibility or maintains some partnership type of role in the delivery of an activity or service Program - A set of activities undertaken in accordance with a plan of action organized to realize identifiable goals based on legislative authorization (a program can consist of single or multiple services). For purposes of budget development, programs are identified in the General Appropriations Act by a title that begins with the word “Program.” In some instances a program consists of several services, and in other cases the program has no services delineated within it; the service is the program in these cases. The LAS/PBS code is used for purposes of both program identification and service identification. “Service” is a “budget entity” for purposes of the LRPP Program Component - is an aggregation of generally related objectives which, because of their special character, related workload and interrelated output, can logically be considered an entity for purposes of organization, management, accounting, reporting, and budgeting REAL System - Regulatory Enforcement and Licensing System – a comprehensive system which will provide OFR with an integrated financial regulatory management system by combining core processes for fiscal, licensing,


investigations, examination, legal and complaint functions – initial funding for the project was granted in Fiscal Year 2006-07 and it is anticipated it will be completed in Fiscal Year 2009-10 Reliability - The extent to which the measuring procedure yields the same results on repeated trials and data are complete and sufficiently error free for the intended use SEC – Securities and Exchange Commission Service - See Budget Entity Standard - The level of performance of an outcome or output. SWOT - Strengths, Weaknesses, Opportunities and Threats TCS - Trends and Conditions Statement TF - Trust Fund TRW - Technology Review Workgroup Unit Cost - The average total cost of producing a single unit of output – goods and services for a specific agency activity USA PATRIOT Act – United States Uniting and Strengthening America by Providing Appropriate Tools Required to Interrupt and Obstruct Terrorism Act Validity - The appropriateness of the measuring instrument in relation to the purpose for which it is being used

Service/Budget Entity: 43900510 Compliance and Enforcement

Approved Performance Measures for FY 2007-08

(Words)

Approved Prior Year Standard

FY 2006-07 (Numbers)

Prior Year Actual


Approved Standards for FY 2007-08 (Numbers)

Requested FY 2008-09

Standard (Numbers)

DELETE MEASURE: Percent of licensees examined where department action is taken

37.5% 64.83% DELETE DELETE

DELETE MEASURE: Percent of licensees examined on a for-cause basis where department action is taken for violations


DELETE MEASURE: Percent of licensees examined on a routine basis where department action is taken for violations


DELETE MEASURE: Number of for-cause examinations completed 501 268 DELETE DELETE

DELETE MEASURE: Number of routine examinations completed 399 258 DELETE DELETE

DELETE MEASURE: Percent of total licensees examined to determine compliance with applicable regulations


Service/Budget Entity: 43900520 Regulatory Review


(Words)



Prior Year Actual




Standard (Numbers)

DELETE MEASURE: Percent of licensees sanctioned for violations <1% 0.47% DELETE DELETE

DELETE MEASURE: Percent of applicants not granted registration in the securities industry in Florida who subsequently are the subject of regulatory action


DELETE MEASURE: Number/percent of filing requests processed within a designated standard number of days by type

83,250 / 75% 58,560 / 79% DELETE DELETE

DELETE MEASURE: Percent of total applicants not licensed to conduct business in the state because they fail to meet substantive licensing requirements

<4% 15.02% DELETE DELETE

LRPP Exhibit II – Performance Measures and Standards Department: Financial Services Program: Financial Services Commission, Office of Financial Regulation


Service/Budget Entity: 43900540 Financial Investigations


(Words)



Prior Year Actual FY 2006-

07 (Numbers)



Standard (Numbers)

Primary Service Outcome - Percentage of investigative case referrals that result in enforcement action 75% 81% 75% 80%

DELETE MEASURE: Percentage of documented violations that were referred for enforcement action 75% 84% 75% DELETE

NEW MEASURE: Percentage of documented violations that were referred and/or forwarded for action N/A N/A N/A 95%

DELETE MEASURE: Percentage of investigations completed that result in enforcement action 26% 37% 26% DELETE

Number of financial investigations closed 300 167 300 225

Service/Budget Entity: 43900530 Safety and Soundness of State Banking System


(Words)



Prior Year Actual




Standard (Numbers)

Percentage of applications for new Florida financial institutions that seek state charters 67% 77% 67% 67%

Delete Measure - Percentage of Florida state chartered credit unions that exceed the median of all national/federal credit unions chartered in Florida on return on equity

51% 45% 51% DELETE

Delete Measure - Percentage of Florida state chartered banks that exceed the median of all national/federal banks chartered in Florida on return on equity

51% 40% 51% DELETE

Percentage of banks receiving an examination report within 45 days after the conclusion of their onsite state examination 90% 96% 90% 90%

Percentage of credit unions receiving an examination report within 30 days after the conclusion of their onsite state examination 90% 100% 90% 90%

Percentage of de novo applications statutorily completed that are processed within a standard number of 120 days 67% 35% 67% 67%

Percentage of surveys returned that rate the Division’s examination program as satisfactory or above 75% 85% 75% 75%

Number of domestic financial institutions regulated 316 313 316 316

Number of international financial institutions regulated 53 43 53 53


NEW MEASURE - Program administrative costs (excluding Office of Legal Services) as a percentage of total program costs

N/A N/A N/A less than 3%

NEW MEASURE - Program administrative positions (excluding Office of Legal Services) as a percentage of total program positions

N/A N/A N/A less than 3%

Service/Budget Entity: 43900560 Finance Regulation


(Words)



Prior Year Actual




Standard (Numbers)

NEW MEASURE Primary Service Outcome - Percentage of licensees examined where agency action is taken N/A N/A N/A 75%

NEW MEASURE Percentage of licensees examined on a for-cause basis where agency action is taken for violations N/A N/A N/A 75%

NEW MEAUSRE Percentage of licensees examined on a routine basis where agency action is taken for violations N/A N/A N/A 75%

NEW MEASURE Number of for-cause examinations completed N/A N/A N/A 206 NEW MEASURE Number of routine examinations completed N/A N/A N/A 197 NEW MEASURE Primary Service Outcome Percentage of license applications processed within Administrative Procedure Act requirements N/A N/A N/A 100%

NEW MEASURE Percentage of filing requests processed within a designated standard number of days (standard is based on type of filing) N/A N/A N/A 90%

NEW MEASURE Number of formal actions taken as a result of licensing substantive review process N/A N/A N/A 125

Service/Budget Entity: 43900550 Executive Direction and Support Services


(Words)



Prior Year Actual FY 2006-07

(Numbers)



Standard (Numbers)

Program administration costs (including Office of Legal Services) as a percent of total program costs 10%

10% less than 12%

10% less than 12%

Program administration positions (including Office of Legal Services) as a percent of total program positions

10%

10% less than 12%

10% less than 12%


Service/Budget Entity: 43900570 Securities Regulation


(Words)



Prior Year Actual




Standard (Numbers)

NEW MEASURE - Primary Service Outcome - % of enforcement examination referrals that result in enforcement action N/A N/A N/A 75%

NEW MEASURE - % of compliance examinations resulting in action N/A N/A N/A 30% NEW MEASURE - # of compliance examinations completed N/A N/A N/A 130 NEW MEASURE - % of compliance examinations closed or referred to the Office of Legal Services or referred to enforcement examination within 180 days

N/A N/A N/A 75%

NEW MEASURE - % of consumer complaints closed or referred to a compliance or enforcement examination within 180 days N/A N/A N/A 90%

NEW MEASURE - Primary Service Outcome - % of applicants not granted registration in the securities industry in Florida who subsequently are the subject of additional regulatory disclosure

N/A N/A N/A 45%

NEW MEASURE - % of filing requests processed within a designated standard number of days (standard based on type of filing) N/A N/A N/A 90%

NEW MEASURE - % of license applications processed within Administrative Procedure Act requirements N/A N/A N/A 100%

NEW MEASURE - # of actions taken as a result of licensing substantive review process N/A N/A N/A 75


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900510 Compliance and Enforcement Measure: Percentage of licensees examined where department action is taken Action:

Performance Assessment of Outcome Measure Revision of Measure Performance Assessment of Output Measure Deletion of Measure Adjustment of GAA Performance Standards

Approved Standard

Actual Performance

Results Difference

(Over/Under) Percentage Difference

37.5% 64.83% 27.33% 173% Factors Accounting for the Difference: Internal Factors (check all that apply):

Personnel Factors Staff Capacity Competing Priorities Level of Training Previous Estimate Incorrect Other (Identify)

Explanation: Management has directed staff to focus more resources on those areas that pose the greatest risk to Florida consumers. This has resulted in examiners conducting fewer, but more thorough, examinations. This is evidenced by the fact that the percentage of licensees examined where Department action is taken is significantly above the standard (37.5% standard, 64.83% actual.) Additionally, the agency has noticed a substantial increase in the number of cases involving mortgage-backed securities, egregious sales practice violations, and criminal activity. These types of cases are extremely complex in nature and require extensive time for examination staff and management to compile and review. This has impacted the completion of other types of exams conducted by the agency due to the need to reallocate resources. External Factors (check all that apply):

Resources Unavailable Technological Problems Legal/Legislative Change Natural Disaster Target Population Change Other (Identify) This Program/Service Cannot Fix the Problem Current Laws Are Working Against The Agency Mission

Explanation:


Management Efforts to Address Differences/Problems (check all that apply): Training Technology Personnel Other (Identify)

Recommendations: The agency’s budget entities changed Fiscal Year 2007-08. This measure has been requested for deletion.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900510 Compliance and Enforcement Measure: Percentage of licensees examined on a for cause basis where department action is taken for violations Action:


Approved Standard

Actual Performance

Results Difference




Explanation: Management has directed staff to focus more resources on those areas that pose the greatest risk to Florida consumers. This has resulted in examiners conducting fewer, but more thorough, examinations. This is evidenced by the fact that the percentage of licensees examined where Department action is taken is significantly above the standard (37.5% standard, 64.83% actual.) Additionally, the agency has noticed a substantial increase in the number of cases involving mortgage-backed securities, egregious sales practice violations, and criminal activity. These types of cases are extremely complex in nature and require extensive time for examination staff and management to compile and review. This has impacted the completion of other types of exams conducted by the agency due to the need to reallocate resources. External Factors (check all that apply):


Explanation:



Recommendations: The agency’s budget entities changed for Fiscal Year 2007-08. This measure has been requested for deletion.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900510 Compliance and Enforcement Measure: Percentage of licensees examined on a routine basis where department action is taken against the licensee for violations Action:


Approved Standard

Actual Performance

Results Difference




Explanation: Management has directed staff to focus more resources on those areas that pose the greatest risk to Florida consumers. This has resulted in examiners conducting fewer, but more thorough, examinations. This is evidenced by the fact that this measure is significantly above the approved standard. . External Factors (check all that apply):


Explanation: Management Efforts to Address Differences/Problems (check all that apply):

Training Technology Personnel Other (Identify)


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900510 Compliance and Enforcement Measure: Number of for-cause examinations completed Action:


Approved Standard

Actual Performance

Results Difference


501 268 -233 -47% Factors Accounting for the Difference: Internal Factors (check all that apply):


Explanation: External Factors (check all that apply):


Explanation: Management has directed staff to focus more resources on those areas that pose the greatest risk to Florida consumers. This has resulted in examiners conducting fewer, but more thorough, examinations. This is evidenced by the fact that the percentage of licensees examined where Department action is taken is significantly above the standard (37.5% standard, 64.83% actual.) Additionally, the agency has noticed a substantial increase in the number of cases involving mortgage-backed securities, egregious sales practice violations, and criminal activity. These types of cases are extremely complex in nature and require extensive time for examination staff and management to compile and review. This has impacted the completion of other types of exams conducted by the agency due to the need to reallocate resources.


Management Efforts to Address Differences/Problems (check all that apply):




LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900510 Compliance and Enforcement Measure: Number of routine examinations completed Action:


Approved Standard

Actual Performance

Results Difference


399 258 -141 -35% Factors Accounting for the Difference: Internal Factors (check all that apply):




Explanation: Management has directed staff to focus more resources on those areas that pose the greatest risk to Florida consumers. This has resulted in examiners conducting fewer, but more thorough, examinations. This is evidenced by the fact that the percentage of licensees examined where Department action is taken is significantly above the standard (37.5% standard, 64.83% actual.) Additionally, the agency has noticed a substantial increase in the number of cases involving mortgage-backed securities, egregious sales practice violations, and criminal activity. These types of cases are extremely complex in nature and require extensive time for examination staff and management to compile and review. This has impacted the completion of other types of exams conducted by the agency due to the need to reallocate resources.



Recommendations: The agency’s budget entities changed in Fiscal Year 2007-08. This measure has been requested for deletion.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900510 Compliance and Enforcement Measure: Percentage of total licensees examined to determine compliance with applicable regulations Action:


Approved Standard

Actual Performance

Results Difference


2.39% .92% -1.47% -62% Factors Accounting for the Difference: Internal Factors (check all that apply):




Explanation: At the end of Fiscal Year 2006-07, the number of financial services licensees regulated by the Office totaled over 57,361 compared to 33,296 at the end of Fiscal Year 2002-03 – a 72.3% increase. Management Efforts to Address Differences/Problems (check all that apply):



LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900520 Regulatory Review Measure: Percentage of applicants not granted registration in the securities industry in Florida who subsequently are the subject of regulatory action Action:


Approved Standard

Actual Performance

Results Difference


50% 41% -9% -8% Factors Accounting for the Difference: Internal Factors (check all that apply):






Recommendations: The agency’s budget entities changed Fiscal Year 2007-08. This measure has been requested for deletion.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900520 Regulatory Review Measure: Number/Percentage of filing requests processes within a designated standard number of days by type Action:


Approved Standard

Actual Performance

Results Difference


83,250/75% 58,560/79% -24,690/4% -30% Factors Accounting for the Difference: Internal Factors (check all that apply):




Explanation: This measure includes renewals, compliance filings, public requests and financial statement review and processing. The decrease in the number of filings processed is attributed to biennial renewals for certain license types. This, in turn, allowed staff to process filings in a more timely manner, which led to an increased percentage in performance results. Management Efforts to Address Differences/Problems (check all that apply):




LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900520 Regulatory Review Measure: Percent of licensees sanctioned for violations Action:


Approved Standard

Actual Performance

Results Difference


<1% 0.47% N/A N/A Factors Accounting for the Difference: Internal Factors (check all that apply):








LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900520 Regulatory Review Measure: Percentage of applicants not licensed to conduct business in the state because they fail to meet substantive licensing requirements Action:


Approved Standard

Actual Performance

Results Difference


<4% 15.02% 11.02% 275% Factors Accounting for the Difference: Internal Factors (check all that apply):




Explanation: In response to an audit by the Auditor General, the Office initiated steps to reduce the backlog of applications awaiting denial where the applicant had not timely satisfied the licensing requirements. This resulted in an increase in the actual performance results for Fiscal Year 2006-07. Management Efforts to Address Differences/Problems (check all that apply):



LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety and Soundness of the State Banking System Measure: Percentage of de novo applications statutorily completed that are processed within a standard number of 90 days Action:


Approved Standard

Actual Performance

Results Difference


67% 35% -32% -47.7% Factors Accounting for the Difference: Internal Factors (check all that apply):



Resources Unavailable Technological Problems Legal/Legislative Change Natural Disaster Target Population Change Other (Identify) This Program/Service Cannot Fix the Problem Current Laws Are Working Against the Agency Mission

Explanation: The Office is statutorily charged to ensure: (a) the safe and sound conduct of the business of the financial institutions subject to the financial institutions codes; (b) the prudent conservation of the assets of the financial institutions subject to the financial institutions codes; (c) the maintenance of public confidence in the financial institutions subject to the financial institutions codes; and (d) the protection of the interests of the public in the safety and soundness, and the preservation, of the financial institution system in this state and the protection of the interests of the depositors and creditors of financial institutions. The de novo chartering process is the foundation of this effort. The process requires an extensive amount of man hours and other resources. The timing of our review of application data and supplemental information is subject to the ability of applicant groups to submit such data in a timely manner. There has been a significant


increase in the number of applications and they have been handled with limited resources. New background investigation procedures on proposed directors and executive officers are extensive and time consuming. The Office makes every effort to promote the growth of Florida’s financial institution industry by working with applicants during the review process to correct non-fatal deficiencies. This often requires the Office to exceed the 90 day time frame. By exceeding the time frame, OFR can often avoid rendering a premature decision (denial) and forcing applicants into undue additional expenses relating to the refilling of an application. During Fiscal Year 2006-07, almost all new bank applications processed required the expenditure of an inordinate amount of staff resources and time to process. Many times, the applicant extended the processing time by failing to provide the Office with required information. One hundred percent of the applications were processed within the 180-day statutory mandate. Management Efforts to Address Differences/Problems (check all that apply):


Recommendations: The Office will continue to try to meet this goal without compromising the integrity of the application process. The licensing area has been reorganized with a Financial Administrator supervising two Senior Management Analyst II positions and one Administrative Assistant. The additional staff and reorganization of the licensing unit will help OFR meet or exceed this goal. The Office will also continue to evaluate licensing and chartering processes to determine if there are any ways to streamline and improve efficiencies, without sacrificing effectiveness. It is requested that the current 90-day benchmark be extended to 120 days.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety and Soundness of the State Banking System Measure: Percentage of surveys returned that rate the Division’s examination program as satisfactory or above Action:


Approved Standard

Actual Performance

Results Difference


75% 85% 10% 13.3% Factors Accounting for the Difference: Internal Factors (check all that apply):




Explanation: Fewer surveys were returned to the Office this year than in past years. Management Efforts to Address Differences/Problems (check all that apply):


Recommendations: The Office will reemphasize to financial institutions the need that all institutions complete and return their surveys. The Office will look at additional ways to get this message to the financial institutions including communicating it through the industry trade organizations such as the Florida Bankers Association, Florida Credit Union League, and Florida International Bankers Association.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT

Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety & Soundness of State Banking System Measure: Percentage of state chartered banks that exceed the median of all national banks chartered in Florida on return on equity (ROE) Action:


Approved Standard

Actual Performance

Results Difference


51% 40% -11% -21.6% Factors Accounting for the Difference: Internal Factors (check all that apply):




Explanation: The Office has chartered a significant number of new state banks during the last five to ten years. Since 2000, approximately 70 new state banks have opened in Florida. During the same period, the Comptroller of the Currency has opened 3 new national banks. New banks lose money during the first year or two of operation and have excessive amounts of capital which drives the ratio down. The 70 new institutions that have opened during the last five years in Florida represent more than one-third of all state banks. Consequently, the high volume of new charters has adversely impacted the level of ROE that is targeted by this measure. This condition will continue as long as the level of new bank openings continues.


Management Efforts to Address Differences/Problems (check all that apply):


Recommendations: It is requested that this measure be deleted because the Office does not have any control over it. There is no statutory mandate that requires any state financial institution to have a ROE that is within a specific range that is demonstrated by corresponding nationally-chartered financial institutions. In addition, while there are traditional benchmark levels of ROE that have been considered as satisfactory, ROE should be evaluated on an institution by institution basis when determining if an institution is operating in a safe and sound manner. For example, an institution with a ROE of 8% might be in a more safe and sound condition than another with an ROE of 15% based on factors that include asset quality, liquidity, and management.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety and Soundness of the State Banking System Measure: Number of international financial institutions regulated Action:


Approved Standard

Actual Performance

Results Difference


53 43 10 -19% Factors Accounting for the Difference: Internal Factors (check all that apply):




Explanation: Federal laws dealing with anti-terrorism and anti-money laundering have impacted the number of foreign banks that want to have a presence in Florida. Economic conditions in other countries have had a role in the reduction of the number of foreign bank offices in Florida. Also, a number of offices in Florida have been consolidated into offices in other states (typically New York) due to internal reorganization plans of foreign banks. These factors are beyond the control of the Office. Management Efforts to Address Differences/Problems (check all that apply):



Recommendations: The Office continues to reach out to the international banking community though the Florida International Bankers Association.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530-Safety and Soundness of the State Banking System Measure: Percentage of Florida state-chartered credit unions that exceed the median of all national/federal credit unions chartered in Florida on return on equity (ROE) Action:


Approved Standard

Actual Performance

Results Difference


51% 45% -6 -11.8% Factors Accounting for the Difference: Internal Factors (check all that apply):




Explanation: The Office does not have any control over the level of ROE that can be attained by a state credit union. Management Efforts to Address Differences/Problems (check all that apply):


Recommendations: The Office recommends that this measure be deleted. Credit unions do not have the same capital structure as the banking industry due to the mutual form of


organization. Therefore, credit union “equity”, as reflected in this measure, does not correspond to equity in a commercial bank. More importantly, this measure should be deleted because the Office does not have any control over the results. There is no statutory mandate that requires any state financial institution to have a ROE that is within a specific range that is demonstrated by corresponding nationally-chartered financial institutions. In addition, while there are traditional benchmark levels of ROE that have been considered as satisfactory industry standards, ROE should be evaluated on an institution by institution basis when determining if an institution is operating in a safe and sound manner. For example, an institution with a ROE of 8% might be in a more safe and sound condition than another with an ROE of 15% based on factors that include asset quality, liquidity, and management.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900540 Financial Investigations Measure: Number of Financial Investigations Closed. Action:


Approved Standard

Actual Performance

Results Difference


300 167 -133 44% Factors Accounting for the Difference: Internal Factors (check all that apply):


Explanation: The previous standard estimate did not adequately account for the following factors which has had a significant negative impact on productivity: 1) The increasing number and complexity of the financial investigations conducted, especially those related to mortgage fraud. 2) The unprecedented 40% investigator turnover over the last three years. 3) The difficulty in hiring qualified investigators - the Bureau has consistently experienced a 9-10% vacancy rate, and 4) The number of inexperienced investigators - 40% of the current staff has been with the Bureau for less than three years.


Investigator Retention Analysis

18

6

65

1 21 0

1 21 0 0

1 0 1

02

46

810

1214

1618

20

<2 3-4 5-6 7-8 9-10 11-12

13-14

15-16

17-18

19-20

21-22

23-24

25-26

27-28

29-30

>30

Years of Service

# of

Inve

stig

ator

s

Delays inherent in recruiting, hiring and training new investigators have a significant negative impact on productivity. However, it should be noted that while fewer investigations were closed during Fiscal Year 2006-07, more than $90.2 million in court ordered and voluntary restitution was obtained for victims as a result of OFR’s investigations. Also noteworthy is the fact that criminal convictions resulted in a total of 271 years imprisonment and 113 years probation being imposed on defendants. Criminal investigations are more complex and require more man hours and resources to complete. External Factors (check all that apply):




Management has put forth great effort to hire well-qualified investigators to fill the vacancies as expeditiously as possible. The Bureau has established an on-line

40% have less than 3 years 67% have less than 7 years 78% have less than 9 years


training program with lessons to specifically address the unique training requirements for the Financial Investigators. Training new staff, as well as continuing training for existing staff is a priority for the Bureau. Recommendations: Reduce the current standard from 300 to 225. • Pursue budget amendment to increase salary levels to retain qualified

investigative staff and reduce turnover. • Continue New Investigator Training programs, in addition to on-the-job and

on-line training to make new employees as productive as possible within the shortest span of time.

• Continue to provide an Annual Training Program for all investigators to make sure they are abreast of the most current laws, rules, criminal activity, techniques, etc.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900540 Financial Investigations Measure: Percentage of investigative case referrals that result in enforcement action. Action:


Approved Standard

Actual Performance

Results Difference


75% 81% Over 6% Factors Accounting for the Difference: Internal Factors (check all that apply):






Recommendations: • In an effort to clarify this Outcome the words “investigative case” has been

added. • Request that the standard be increase to 80% which makes it consistent with

our Performance Contract with the Financial Services Commission.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900540 Financial Investigations Measure: Percentage of documented violations that were referred for enforcement action Action:


Approved Standard

Actual Performance

Results Difference


75% 84% Over 9% Factors Accounting for the Difference: Internal Factors (check all that apply):






Recommendations: • Request deletion of this measure and replace it with "Percentage of

documented violations that were referred for action." This new measure is consistent with the Performance Contract with the Financial Services Commission.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900540 Financial Investigations Measure: NEW - Percentage of documented violations that were referred for action Action:

Performance Assessment of Outcome Measure Revision of Measure Performance Assessment of Output Measure Deletion of

Measure Adjustment of GAA Performance Standards Approved Standard

Actual Performance

Results Difference


Factors Accounting for the Difference: Internal Factors (check all that apply):






Recommendations: This new outcome measure, "Percentage of documented violations that were referred for action" will replace “Percentage of documented violations that were referred for enforcement action.” A standard of 95% is requested. This new measure is consistent with the Performance Contract with the Financial Services Commission.



Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900540 Financial Investigations Measure: Percentage of investigations completed that result in enforcement action. Action:

Performance Assessment of Outcome Measure Revision of Measure Performance Assessment of Output Measure Deletion of

Measure Adjustment of GAA Performance Standards Approved Standard

Actual Performance

Results Difference


26% 37% Over 11%

Factors Accounting for the Difference: Internal Factors (check all that apply):






Recommendations: Request deletion of this measure which is not included in OFR’s Performance Contract with the Financial Services Commission. The Bureau responds to all allegations and complaints received. However, the Bureau has no control over whether the investigations opened produce sufficient evidence to substantiate violations of law and support any enforcement action.


LRPP Exhibit III: PERFORMANCE MEASURE ASSESSMENT Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900550 Executive Direction and Support Services Measure: Program administration costs as a percent of total program costs. Action:


Approved Standard

Actual Performance

Results Difference


10% 12.1% Over +2.1% Factors Accounting for the Difference: Internal Factors (check all that apply):


Explanation: This measure captures the costs associated with administrative staff and staff in the Office of General Counsel. When costs for the Commissioner’s Office are segregated from the Office of General Counsel, the result is less than 5%. External Factors (check all that apply):




Recommendations:



Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900550 Executive Direction and Support Services Measure: Program administration positions as a percentage of total program positions. Action:


Approved Standard

Actual Performance

Results Difference


10% 11.6% Over +1.6% Factors Accounting for the Difference: Internal Factors (check all that apply):


Explanation: This measure captures the number of administrative staff and staff in the Office of General Counsel. The number of staff in the Commissioner’s Office represents 10 out of 426 FTEs in the agency, or 2%. The balance is made up of legal staff. External Factors (check all that apply):




Recommendations:


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety and Soundness of the State Banking System Measure: Percentage of applications for new Florida financial institutions that seek state charters Action (check one):

Requesting revision to approved performance measure. Change in data sources or measurement methodologies. Requesting new measure. Backup for performance measure.

Data Sources and Methodology: Organizers of new financial institutions have the option of being chartered and regulated by the state or federal government. Many factors influence the decision to seek a state or national/federal charter, including the cost of regulation, accessibility of regulators, authorized powers, and competitive opportunities. The value of the state charter can be measured, to an extent, by the percentage of organizers that seek a state charter in lieu of a national charter. OFR and the Office of the Comptroller of the Currency (OCC), the administrator of national banks, maintain databases of examination, licensing and regulatory information. The databases include information concerning each new bank application filed. Validity: The dual banking system affords financial institutions the option of being chartered and regulated by the state or federal government. For state regulation to have value, it must demonstrate that such regulation is a viable alternative for individuals seeking to organize new financial institutions in Florida. The proportion of organizers seeking state charters rather than national charters is a valid indicator of the value of the state charter. Given unprecedented levels of market concentration and out-of-state control of deposit market share in Florida, new market entry is essential to maintain competitiveness and mitigate against potential oligarchic behavior. The measure demonstrates the relative value of the dual banking system in Florida and supports OFR’s mission to provide a high quality, cost efficient state regulatory system. Reliability: OFR and the Office of the Comptroller of the Currency maintain databases of examination, licensing and regulatory information. The databases include information concerning each new bank application filed. The databases


are updated on a continuous basis. Back-up documentation is maintained by OFR to ensure the data is verifiable. Efforts have been made to assure data is promptly and correctly entered into DOGI, so that such data is deemed to be “audit-proof.”


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety and Soundness of the State Banking System Measure: Percentage of Florida State chartered financial institutions that exceed the median of all national/federal financial institutions chartered in Florida on return on equity Action (check one):


Data Sources and Methodology: All financial institutions are required to file quarterly financial reports with the appropriate regulatory agencies. These quarterly reports contain a wealth of financial information relating to balance sheets, income statements, and other operating data. Currently, the Federal Deposit Insurance Corporation (FDIC) compiles Consolidated Reports of Condition and Income for state and national commercial banks and thrifts and the National Credit Union Administration (NCUA) compiles similar reports for state and federal credit unions. The FDIC and NCUA maintain quarterly financial data on their respective mainframe systems. Each of these agencies allows state financial institution regulators to access and manipulate quarterly report information. Therefore, the data sources for this measure will be from the appropriate federal regulatory agency’s database. For commercial banks, earnings performance will be measured by using the ratios of return on assets (ROA) and return on equity (ROE), the most widely recognized measures of bank profitability. ROA is calculated by dividing net income by average assets (for the last five quarters). ROE is calculated by dividing net income by average equity. Solvency performance will be measured by using the ratios of capital to assets and Tier I capital (core capital) to assets. These measures are defined in the FFIEC Users Guide to the Uniform Bank Performance Reports. Credit Unions do not have the same capital structure as the banking industry due to the mutual form of organization. However, for the purpose of equal comparison in this reporting process we have generated ratios based on the tangible capital structure which include the following accounts: (1) Regular and


Other Reserves; (2) Undivided Earnings; (3) Allowance for Loan Losses; and (4) Unrealized Gains/Losses on Investment Accounts (FASB 115 Requirement). Validity: Earnings and solvency performance for Florida state-chartered financial institutions will be compared with national/federal chartered financial institutions operating in the state of Florida, thus controlling for extraneous factors. The dual banking system affords financial institutions the option of being chartered and regulated by the state or federal government. For state regulation to have value, it must demonstrate that such regulation has a positive impact on the financial performance of state chartered institutions. Reliability: The data is reliable since the ratios are industry standard measures of earnings and solvency performance. The underlying data is determined and maintained by the appropriate federal regulatory agencies.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety and Soundness of the State Banking System Measure: Percentage of de novo applications statutorily complete that are processed within 90 days Action (check one):


Data Sources and Methodology: Under Florida Administrative Procedures Act (APA) statutory time frames, OFR has a certain number of days within which to issue final agency action on domestic de novo applications received (180 days). De novo applications do not include international banks because of their unique chartering criteria. The time frame begins when an application is deemed by OFR to be complete with respect to statutory requirements and ends when a final decision is rendered on the application. The data for this measure is maintained in OFR’s Database of General Information (DOGI) and back-up documentation is maintained to validate the information. Only applications for which a decision was rendered during the relevant time frames will be used in the calculation. The measure will be calculated by determining all applications that were acted on (decision) during the relevant time period. The measure will be calculated as follows: a. Determine number of days required to process each application (Date of

Notice of Intent - Date application deemed complete) b. % = (Number of applications processed within standard timeframes) /

(Total number of applications processed) OFR has established a standard for domestic de novo application processing (90 days) that is less than the statutory minimum for this type of application. Validity: The measure is a valid indicator of the amount of time required to process applications and to determine whether OFR has met its statutory requirements. Timely processing of applications also reduces unnecessary regulatory burden on applicants. The measure is an appropriate indicator of how long it takes to


issue a final agency action for an application and supports OFR’s mission to reduce regulatory burden on the industry. Reliability: All dates and other information needed to calculate these measures are maintained in DOGI. OFR maintains back-up documents to validate entries in the database. Efforts have been made to assure data is promptly and correctly entered into DOGI, so that such data is deemed to be “audit-proof.”


LRPP Exhibit IV: Performance Measure Validity and Reliability Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety and Soundness of the State Banking System Measure: Percentage of surveys returned that rate the Division’s examination program as satisfactory or above Action (check one):


Data Sources and Methodology: State financial institutions are the sources of data. OFR has developed an examination questionnaire that is sent to all state financial institutions that have been examined. The questionnaire solicits comments on the safety and soundness examination process, examination team, and examination report. The survey also elicits a response to the exhaustiveness and efficiency of state examinations compared with those conducted by federal regulators. This output will be calculated by averaging all responses to sections 1, 2, and 3 of the questionnaire. These sections relate to the examination process, team and report. Validity: The survey results provide OFR with an objective evaluation of the quality of the product we provide (financial institution regulation) by our customers. This type of measure is broadly used throughout the business industry as a form of quality control. The measure provides OFR with direct feedback from our customers, the state financial institutions, and is used to evaluate the product we provide. Survey results provide OFR with a perspective from the “outside” which can be used to improve our processes. Reliability: All survey information needed to calculate this measure is maintained in Excel spreadsheets. OFR maintains back-up documents to validate entries in the spreadsheets. Efforts have been made to assure data is promptly and correctly entered into an Excel spreadsheet and tabulated so that such data is deemed to be “audit-proof.”


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety and Soundness of the State Banking System Measure: Percentage of banks receiving an examination report within 45 days after the conclusion of their onsite state examination Action (check one):


Data Sources and Methodology: The data for this measure is maintained in the OFR’s Database of General Information (DOGI). First, OFR will identify all state safety and soundness examinations transmitted (mailed) to the financial institutions during the relevant time period (e.g.; with a mail dated during the relevant time period). Second, using the examinations mailed during the time frame, OFR will use the examination “end date” (i.e.; walk-out date) as the date of the conclusion of the on-site examination and the date the examination is mailed to the financial institution will serve as the date the institution received the report. The difference [mail date minus end date] is the processing or examination turn around time. OFR has established standards, by type of institution. Examinations of domestic banks are more complex and require additional processing/analysis time. OFR has established 45 days as the standard for examinations of domestic banks. Validity: This measure will address OFR’s efficiency in timely communicating examination findings to financial institution management, allowing management to make prompt corrections to identified deficiencies. This measure is an appropriate indicator of how quickly management is formally made aware of findings identified at a state examination. The sooner deficiencies are corrected, the less the chance of more serious problems that could result in insolvency which may ultimately inconvenience financial institution customers.


Reliability: All dates and other information required to calculate these measures are maintained in DOGI. OFR also maintains back up documentation to validate the information contained in the database. Efforts have been made to assure data is promptly and correctly entered into DOGI, so that such data is deemed to be “audit-proof.”


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety and Soundness of the State Banking System Measure: Percentage of credit unions receiving an examination report within 30 days after the conclusion of their onsite state examination Action (check one):


Data Sources and Methodology: The data for this measure is maintained in the OFR’s Database of General Information (DOGI). First, OFR will identify all state safety and soundness examinations transmitted (mailed) to the financial institutions during the relevant time period (e.g.; with a mail dated during the relevant time period). Second, using the examinations mailed during the time frame, OFR will use the examination “end date” (i.e.; walk-out date) as the date of the conclusion of the on-site examination and the date the examination is mailed to the financial institution will serve as the date the institution received the report. The difference [mail date minus end date] is the processing or examination turn around time. OFR has established standards, by type of institution. Credit union examinations are usually the least complex and therefore require less time to process than other types of financial institutions. OFR believes 30 days is a reasonable turn around standard for credit unions. Validity: This measure will address OFR’s efficiency in timely communicating examination findings to financial institution management, allowing management to make prompt corrections to identified deficiencies. This measure is an appropriate indicator of how quickly management is formally made aware of findings identified at a state examination. The sooner deficiencies are corrected, the less the chance of more serious problems that could result in insolvency which may ultimately inconvenience financial institution customers.


Reliability: All dates and other information required to calculate these measures are maintained in DOGI. OFR also maintains back up documentation to validate the information contained in the database. Efforts have been made to assure data is promptly and correctly entered into DOGI, so that such data is deemed to be “audit-proof.”


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety and Soundness of the State Banking System Measure: Number of domestic financial institutions regulated Action (check one):


Data Sources and Methodology: The data for this measure is maintained in the OFR’s Database of General Information (DOGI). OFR has a program that counts the number of domestic banks, credit unions and non-deposit trust companies. Validity: This measure supports OFR’s efforts to promote the growth of state-chartered domestic financial institutions in Florida. Reliability: All information required to calculate this measure is maintained in DOGI. OFR also maintains back up documentation to validate the information contained in the database. Efforts have been made to assure data is promptly and correctly entered into DOGI, so that such data is deemed to be “audit-proof.”


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Office of Financial Regulation Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900530 Safety and Soundness of the State Banking System Measure: Number of international financial institutions regulated Action (check one):


Data Sources and Methodology: The data for this measure is maintained in the OFR’s Database of General Information (DOGI). OFR has a program that counts the number of state licensed international banking offices. Validity: This measure supports OFR’s efforts to promote the growth of state-licensed international banking offices in Florida. Reliability: All information required to calculate this measure is maintained in DOGI. OFR also maintains back up documentation to validate the information contained in the database. Efforts have been made to assure data is promptly and correctly entered into DOGI, so that such data is deemed to be “audit-proof.”


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900540 Financial Investigations Measure: Percentage of investigative case referrals that result in enforcement action. Action (check one):


Data Sources and Methodology: Documented Violations – When it has been determined that there is evidence of violations of Florida Statutes or administrative rules, this fact should be appropriately noted in the Activity Tracking System (ATS) investigative case record and the supporting documentation should be made a permanent part of the investigative case file. A Referral of an investigative case is made when violations of law and/or administrative rules have been documented by evidence and the Bureau seeks legal assistance in taking enforcement action. Internal referrals are made to Office Legal Staff. Criminal referrals are frequently made to State Attorneys’ Office, the Office of Statewide Prosecution, and the United States Attorney’s Office. The results of investigations may also be referred to federal regulators or other state agencies, such as the Office of the Attorney General. Once an investigative case is accepted by the other agency for enforcement, OFR investigators provide full investigative support as needed. When an Enforcement Action is taken, the investigator assigned will record the action in the Enforcement Module of the Activity Tracking System (ATS). Below are the types of actions that can be recorded:

Administration – Administrative Action Field Administration – Corrective/Favorable Action Civil – Civil Action Filed Civil – Favorable Judgment Entered Criminal – Arrest Made Criminal – Criminal Action Field Criminal – Conviction/Plea


An investigation is Closed when the investigator assigned, and the reviewing authority, deem all matters complete. In cases where the Office is directly involved with the prosecution, the matter is not closed until final disposition of the administrative, civil or criminal case. The ATS record is updated and reviewed for completeness. With proper documentation made to the file the matter is closed. Calculation of Outcome Measure: The percentage of investigative case referrals that result in enforcement actions will be determined by dividing the total number of closed cases where enforcement action was taken by the number of closed investigative cases that were referred for enforcement action.

Data Source: The data source is the Activity Tracking System (ATS) Investigative Case Module database. This application resides on the Department of Financial Services mainframe and access to this module is restricted primarily to the Bureau of Financial Investigations. Investigators are required to enter data into this database per Bureau Operational Memorandum on Investigative Standards. There are specific fields in the ATS Investigative Case Module to adequately capture Performance Based Budgeting data. Validity: The Office strives to protect consumers from financial fraud while preserving the integrity of Florida's markets and financial service industries. Investigations are conducted of alleged or suspected violations that fall under the jurisdiction of the Office of Financial Regulation. Historically, 86% of all investigative cases are against unlicensed/unregistered entities. Not all documented violations warrant referral for enforcement actions, for example the violation may be minor, and an investigation may confirm that the activity has halted, or an unlicensed entity has come into compliance. This Outcome will measure the Bureau’s ability to identify and document fraudulent activity under our jurisdiction, as well as confirm that actions are being taken against those violators. Reliability: Data inconsistencies can occur from input errors. To enhance database accuracy and integrity, regional and headquarters management review ATS records on a monthly basis. Additionally, managers conduct a complete review of active and recently closed investigations on a semi-annual basis to validate ATS data and ensure compliance with operational memoranda and established procedures. Ultimately, the decision to file administrative, civil or criminal action is outside the control of the Bureau and is impacted by the priorities and resources of the prosecutor. Many enforcement actions resulting from investigations conducted by the Bureau are complex and resource intensive. When referring investigations for potential prosecution, the Bureau commits to provide additional investigative resources or litigation support as needed.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability

Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900540 Financial Investigations Measure: Percentage of documented violations that were referred for action Action (check one):


Data Sources and Methodology: Documented Violations – When it has been determined that there is evidence of violations of Florida Statutes or administrative rules, this fact should be appropriately noted in the Activity Tracking System (ATS) investigative case record and the supporting documentation should be made a permanent part of the investigative case file. A Referral of an investigation is made when violations of law and/or administrative rules have been documented by evidence. Calculation of Outcome Measure: The percentage of documented violations that were referred for action will be determined by dividing the total number of cases referred for action by the number of cases where violations were documented.

Data Source: The data source is the Activity Tracking System (ATS) Investigative Case Module database. This application resides on the Department of Financial Service’s mainframe and access to this module is restricted primarily to the Bureau of Financial Investigations. Investigators are required to enter data into this database per Bureau Operational Memorandum on Investigative Standards. There are specific fields in the ATS Investigative Case Module to adequately capture Performance Based Budgeting data. Validity: The Office strives to protect consumers from financial fraud while preserving the integrity of Florida’s markets and financial service industries. Investigations are conducted of alleged or suspected violations that fall under the jurisdiction of the Office of Financial Regulation. Historically, 86% of all investigative cases are against unlicensed/unregistered entities. Not all documented violations warrant referral for enforcement actions, for example the


violation may be minor, and an investigation may confirm that the activity has halted, or an unlicensed entity has come into compliance. This Outcome will measure the Bureau’s ability to identify and document fraudulent activity, as well as confirm that actions are being taken against those violators. Reliability: Information needed for this measure can be retrieved from the Activity Tracking System (ATS). The mandated requirement for investigators to enter, update and ensure that data entered is accurate and timely is identified in Bureau Operational Memorandum on Investigative Standards. Regional Investigative Area Financial Managers (AFMs) certify database accuracy monthly. Data inconsistencies can occur from input errors. To enhance database accuracy and integrity, regional and headquarters management review ATS records on a monthly basis. Additionally, managers conduct a complete review of active and recently closed investigations on a semi-annual basis to validate ATS data and ensure compliance with operational memoranda and established procedures.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900540 Financial Investigations Measure: Number of Financial Investigations Closed Action (check one):


Data Sources and Methodology: An investigation is the gathering of pertinent evidence undertaken to identify noncompliance or prove/disprove allegations and violations of the law and regulations within the jurisdiction of the Office of Financial Regulation. The following Activity Tracking System (ATS) Area Codes identify an investigation: BNKL Licensed Banking Entity BNKU Unlicensed Banking Entity FINR Registered Finance FINU Unregistered Finance SECR Registered Securities SECU Unregistered Securities Investigation Start Date – An investigation is commenced when there is information/evidence of possible violations of Florida Statutes or administrative rules. When it is determined that an investigation is warranted, the case is assigned to an investigator and, if appropriate, the ATS record is upgraded from a Preliminary Investigation/Inquiry. An Investigation is Closed when the investigator assigned, and the reviewing authority, deem all matters complete. In cases where the Office is directly involved with the prosecution, the matter is not closed until final disposition of the administrative, civil or criminal case. The ATS record is updated and reviewed for completeness. With proper documentation made to the file, the matter is closed. Calculation of Output Measure: The number of cases closed will be determined by counting the number of investigations whose status changed to closed during the review period.


Data Source: The data source is the Activity Tracking System (ATS) Investigative Case Module database. This application resides on the Department of Financial Services mainframe and access to this module is restricted primarily to the Bureau of Financial Investigations. Investigators are required to enter data into this database per Bureau Operational Memorandum on Investigative Standards. There are specific fields in the ATS Investigative Case Module to adequately capture Performance Based Budgeting data. Validity: The Office strives to protect consumers from financial fraud while preserving the integrity of Florida’s markets and financial service industries. Investigations are conducted of alleged or suspected violations that fall under the jurisdiction of the Office of Financial Regulation. The results of these investigations will be used to determine the Bureau of Financial Investigations Performance Outcomes.

Reliability: Information needed for this measure can be retrieved from the Activity Tracking System (ATS). The mandated requirement for investigators to enter, update and ensure that data entered is accurate and timely is identified in Bureau Operational Memorandum on Investigative Standards. Regional Investigative Area Financial Managers (AFMs) certify database accuracy monthly. Data inconsistencies can occur from input errors. To enhance database accuracy and integrity, regional and headquarters management review ATS records on a monthly basis. Additionally, managers conduct a complete review of active and recently closed investigations on a semi-annual basis to validate ATS data and ensure compliance with operational memoranda and established procedures.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900560 – Finance Regulation Measure: Percentage of licensees examined where department action is taken Action (check one):

Requesting revision to approved performance measure. Change in data sources or measurement methodologies. Requesting new measure. Backup for performance.

Data Sources and Methodology: This measure reflects the percentage of licensees disciplined by the agency for violations of the statute. The percentage will be computed by dividing the # routine examinations completed with final action by the total # of examinations completed. An examination generally involves a process whereby examiners conduct an interview of firm employees, complete the appropriate examination module(s) or report, and independently review firm records. The following two types must adhere to this definition: • For cause examinations - an examination conducted based upon

internal/external information (i.e., customer complaint, regulatory referral, review of advertisements, prior exam findings, etc.), which indicates a potential violation of the statute.

• Routine examinations - a proactive examination conducted on randomly

selected entities or entities on an examination cycle, to determine compliance with applicable statutes. Routine (proactive) exams also demonstrate a presence in the industry that is believed to deter unscrupulous activity.

The following dispositions will be used to compute the final output: Exams Completed: Closed Closed No Action Closed No Violation Closed No Business Closed License Terminated Closed Registration Agreement Closed Admonishment Closed Final Order Closed Guidance/Admonishment


Closed Criminal Conviction Closed Guidance Letter Closed Notice of Non-Compliance Administrative Complaint Information will be retrieved from the Office’s Activity Tracking System (ATS) via query with data converted to Excel. The agency will utilize Excel Pivot Tables to capture and group the data each quarter. These tables will be updated each quarter to reflect any entries made to prior periods. At the end of the fiscal year, all affected areas of the department will make final entries to ATS with the understanding that anything not captured as of the agency designated cut-off point will not be reported. Validity: This measure will address the effectiveness of the Office’s regulatory efforts. Ultimately, an effective regulatory program will lead to improved consumer protection. Reliability: Information for this measure will be retrieved from the Office’s Activity Tracking System. All examinations and subsequent actions taken are entered into ATS at the Regional Office level upon initiation of the activity.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900560 – Finance Regulation Measure: Percentage of licensees examined on a for-cause basis where department action is taken for violations Action (check one):


Data Sources and Methodology: This measure reflects the percentage of licensees disciplined by the agency for violations of the statute. The percentage will be computed by dividing the # of for cause examinations completed with final action by the total # of for-cause examinations completed. An examination generally involves a process whereby examiners conduct an interview of firm employees, complete the appropriate examination module(s) or report, and independently review firm records. The following two types must adhere to this definition: • For cause examinations - an examination conducted based upon




The following dispositions will be used to compute the final output: Exams Completed: Closed Closed No Action Closed No Violation Closed No Business Closed License Terminated Closed Registration Agreement Closed Admonishment Closed Final Order


Closed Guidance/Admonishment Closed Criminal Conviction Closed Guidance Letter Closed Notice of Non-Compliance Administrative Complaint Information will be retrieved from the Office’s Activity Tracking System (ATS) via query with data converted to Excel. The agency will utilize Excel Pivot Tables to capture and group the data each quarter. These tables will be updated each quarter to reflect any entries made to prior periods. At the end of the fiscal year, all affected areas of the department will make final entries to ATS with the understanding that anything not captured as of the agency designated cut-off point will not be reported. Validity: This measure will address the effectiveness of the Office’s regulatory efforts. Ultimately, an effective regulatory program will lead to improved consumer protection. Reliability: Information for this measure will be retrieved from the Office’s Activity Tracking System. All examinations and subsequent actions taken are entered into ATS at the Regional Office level upon initiation of the activity.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900560 – Finance Regulation Measure: Percentage of licensees examined on a routine basis where department action is taken against the licensee for violations Action (check one):


Data Sources and Methodology: This measure reflects the percentage of licensees disciplined by the agency for violations of the statute. The percentage will be computed by dividing the # routine examinations completed with final action by the total # of routine examinations completed. An examination generally involves a process whereby examiners conduct an interview of firm employees, complete the appropriate examination module(s) or report, and independently review firm records. The following two types must adhere to this definition: • For cause examinations - an examination conducted based upon




The following dispositions will be used to compute the final output: Exams Completed: Closed Closed No Action Closed No Violation Closed No Business Closed License Terminated Closed Registration Agreement Closed Admonishment Closed Final Order Closed Guidance/Admonishment


Closed Criminal Conviction Closed Guidance Letter Closed Notice of Non-Compliance Administrative Complaint Information will be retrieved from the Office’s Activity Tracking System (ATS) via query with data converted to Excel. The agency will utilize Excel Pivot Tables to capture and group the data each quarter. These tables will be updated each quarter to reflect any entries made to prior periods. At the end of the fiscal year, all affected areas of the department will make final entries to ATS with the understanding that anything not captured as of the agency designated cut-off point will not be reported. Validity: This measure will address the effectiveness of the Office’s regulatory efforts. Ultimately, an effective regulatory program will lead to improved consumer protection. Reliability: Information for this measure will be retrieved from the Office’s Activity Tracking System. All examinations and subsequent actions taken are entered into ATS at the Regional Office level upon initiation of the activity.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900560 – Finance Regulation Measure: Number of for cause examinations completed Action (check one):


Data Sources and Methodology: The measure will report the total number of for cause examinations completed. Completed examinations are those exams with a disposition of closed in the Activity Tracking System (ATS). An examination generally involves a process whereby examiners conduct an interview of firm employees, complete the appropriate examination module(s) or report, and independently review firm records. The following two types must adhere to this definition: • For cause examinations - an examination conducted based upon




The number of for cause examinations will be added to the following ATS activity types, which are considered for cause examinations in the computation of this performance measure: • Investigative Assists - this category is for assists to the Bureau of Financial

Investigations. It can also be used for assists to other regulators or law enforcement authorities.

• Consumer Complaint - this category is for examinations conducted as a result

of a consumer complaint referral. The use of the consumer complaint category allows for an accurate review of complaints which impact OFR examination staff workload.


The following dispositions will be used to compute the final output: Exams Completed: Closed Closed No Action Closed No Violation Closed No Business Closed License Terminated Closed Registration Agreement Closed Admonishment Closed Final Order Closed Guidance/Admonishment Closed Criminal Conviction Closed Guidance Letter Closed Notice of Non-Compliance Administrative Complaint Licensed entity is defined as licensed firms and branch offices only. It excludes the number of individuals licensed separately that must work for a firm (i.e., mortgage brokers). Information will be retrieved from the Office’s ATS via query with data converted to Excel. The agency will utilize Excel Pivot Tables to capture and group the data each month and each quarter. These tables will be updated to reflect any entries made to prior periods. At the end of the fiscal year, all affected areas of the department will make final entries to ATS with the understanding that anything not captured as of the agency designated cut-off point will not be reported. Validity: This measure will address the effectiveness of the Office’s regulatory efforts. Ultimately, an effective regulatory program will lead to improved consumer protection. This measure will also allow the agency to assess resource use and channel those resources where they are most productive. Reliability: Information for this measure will be retrieved from the Office’s Activity Tracking System. All examinations and subsequent actions taken are entered into ATS at the Regional Office level upon initiation of the activity.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Department of Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900560 – Finance Regulation Measure: Number of routine examinations completed Action (check one):


Data Sources and Methodology: The measure will report the total number of routine examinations completed. Completed examinations are those exams with a disposition of closed in the Activity Tracking System (ATS). An examination generally involves a process whereby examiners conduct an interview of firm employees, complete the appropriate examination module(s) or report, and independently review firm records. The following two types must adhere to this definition: • For cause examinations - an examination conducted based upon




The following dispositions will be used to compute the final output: Exams Completed: Closed Closed No Action Closed No Violation Closed No Business Closed License Terminated Closed Registration Agreement Closed Admonishment Closed Final Order Closed Guidance/Admonishment Closed Criminal Conviction Closed Guidance Letter


Closed Notice of Non-Compliance Administrative Complaint Licensed entity is defined as licensed firms and branch offices only. It excludes the number of individuals licensed separately that must work for a firm (i.e., mortgage brokers). Information will be retrieved from the Office’s ATS via query with data converted to Excel. The agency will utilize Excel Pivot Tables to capture and group the data each month and each quarter. These tables will be updated to reflect any entries made to prior periods. At the end of the fiscal year, all affected areas of the department will make final entries to ATS with the understanding that anything not captured as of the agency designated cut-off point will not be reported. Validity: This measure will address the effectiveness of the Office’s regulatory efforts. Ultimately, an effective regulatory program will lead to improved consumer protection. This measure will also allow the agency to assess resource use and channel those resources where they are more productive. Reliability: Information for this measure will be retrieved from the Office’s Activity Tracking System. All examinations and subsequent actions taken are entered into ATS at the Regional Office level upon initiation of the activity.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900560 Finance Regulation Measure: Percentage of license applications processed within Administrative Procedures Act requirements Action (check one):


Data Sources and Methodology: This measure reflects the percentage of applications where the Office processed applications for licensure within the timeframes required by the Administrative Procedures Act (Chapter 120.60, Florida Statutes). The Administrative Procedures Act (APA) requires state agencies that process applications for licensure to advise applicants of any deficiencies in the application within 30 days of receipt of the application. If the agency has complied with this requirement and the applicant does not complete the application within the time frame prescribed in the deficiency letter, the agency may technically deny the application for failure to complete the application. In the event the agency does not issue a deficiency letter within the 30 days, the agency cannot technically deny the application and must consider the application complete upon receipt. Furthermore, the APA requires that the agency approve or deny an application within ninety (90) days of completion of the application. The percentage will be computed by dividing the total number of applications processed within the APA guidelines during the year by the total number of applications processed during the year. Types of applications included in this measure: all business types, branches, and mortgage brokers. Applications will be retrieved from the Departmental Licensing System. Validity: This measure helps to ensure the timely processing of all applications and compliance with state law. This furthers the agency’s mission to support the industries we regulate and customers by providing a timely service to these entities and individuals. Reliability: Data will be captured and reported quarterly. The division tracks applications in the Departmental Licensing System.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900560 Finance Regulation Measure: Percentage of filing requests processed within a designated standard number of days (standard based on type of filing) Action (check one):


Data Sources and Methodology: The Office has determined, as designated in the chart below, the standard number of days to process filings/requests processed by the Office. The Office shall compute the percentage of filings/requests processed within the designated standard number of days to process for each type of filing or request. The percentage will be computed by dividing the number of filings/requests processed within the designated standard days by the total number of filings/requests processed within the period. The overall percentage will be calculated based on the total of all filings/requests processed within the standard number of days divided by the total of all filings/requests processed. Filings include: Applications for all business types, branches/vendors and mortgage brokers; renewals for all business types, branches and mortgage brokers (excludes branches/vendors for money transmitters); public records requests, and compliance notices (i.e. name & address changes, principal changes, terminations). Public Records Requests include: Certificates of registration or non-registration, copies of files, and other public information requested from the Office. Processing times are calculated as follows:

• For applications and compliance notices the days to process will be calculated from the received date to final status date.

• For renewals the days to process will be calculated from the validation date of the renewal fee to date license printed.

• For public records requests the days to process will be calculated from the received date of the request to the date the Office responds to the request.

Sources of data will be the Department Licensing System (DLS), Microsoft Access, and Microsoft Excel.


Hypothetical Example of computation:

Filing/Request Type Std. days to process

# proc. in std. days

total # processed % processed

Applications - Businesses 100 Applications - Branches 80 Applications – Mortgage Brokers

150

Compliance Notices 75 Renewals 30 Public records requests 30 300 500 60.00% % PROCESSED WITHIN STANDARD

60.00%

Validity: This measure will address efficiency in handling of filings/requests in an effort to improve processing time assuming conditions remain stable. Chapter 120, Florida Statutes, prescribes certain timeframes that must be adhered to when processing applications for licensure/registration; however, no statutory or rule requirements exist to dictate time frames for filings/requests not related to an application. It is the goal of the program to improve our processing to better serve the financial services industry and the public. This measure helps to ensure the timely processing of filings/requests. This furthers the agency’s mission to support the industries we regulate and customers by providing a timely service to these entities. Reliability: The computations for filings/requests begin with the receipt date, which is manually stamped on original documents upon receipt. All paper filings with associated fees are date stamped by the Department of Financial Services’ Cashier’s Office. All paper filings not associated with fees are date stamped by Office personnel. All electronic filings are recorded as received upon submission to the Office. Data for filings is captured in the DLS and Access databases and then exported to excel spreadsheets where it is manipulated into the format needed for this computation. Established standards are as follows: TYPE STANDARD Applications - Businesses 100 days from receipt to final action date Applications - Branches 80 days from receipt to final action date Applications – Mortgage Brokers

150 days from receipt to final action date

Renewals 30 days for ministerial (basic) renewals Compliance Notices 75 days from receipt to completed date Public Records Requests 30 days to process from receipt to mail out

*standard days to process established Fiscal Year 2006-07


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900560 Finance Regulation Measure: Number of formal actions taken as a result of licensing’s substantive review Action (check one):


Data Sources and Methodology: This measure reflects the number of formal actions issued regarding applications that based on a substantive review were either denied or granted licensure pursuant to a stipulation and consent agreement. Formal actions represent issuance of a final order. Types of applications included in this measure: all business types, branch offices, and mortgage brokers. Actions taken will be retrieved from the Office’s Activity Tracking System. Applications will be retrieved from the Departmental Licensing System. Validity: This measure provides an indication of the effectiveness of the licensing program by highlighting those entities and individuals that have disclosure events that are grounds for action under the statutes. The licensing standards in effect have had a significant impact on the legitimacy of the financial services industry in the State and the protection of consumers of the State. Historically, the number of formal actions against applicants has remained very low. If this number should rise at any given point, the Office will take action to review and adjust licensing standards where necessary to continue to provide legitimacy to the industry as well as protect consumers. Reliability: Data will be captured and reported quarterly. The year-end number will be computed based on a year-to-date total of formal actions taken as retrieved from the Activity Tracking System (ATS).


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900570 Securities Regulation Measure: Percentage of enforcement examination referrals that result in enforcement action Action (check one):


Data Sources and Methodology: As this is a new measure for Fiscal Year 2007-08, it will only include enforcement examinations referred on or after July 1, 2007. This measure reflects the percentage of Enforcement examination referrals to the Office of Legal Services or a prosecutor that result in enforcement action during the current fiscal year. The percentage will be computed by dividing the number of enforcement examinations completed with an enforcement action by the total number of enforcement examinations referred for enforcement action. All examinations are tracked in the Activity Tracking System (ATS) and are categorized as compliance or enforcement. Enforcement examinations will typically be commenced when (1) there appears to be significant violations of statutes or rules or it appears illegal activity (which is termed an issue) leading to the potential loss of customer funds or other investor harm is occurring or has occurred; (2) the scope and/or complexity of the examination are wide and significant enough that it appears unlikely the examination can be completed within 180 days; and/or (3) there is a reasonable basis to believe that customers have been harmed or there is a significant potential that customers will be harmed. An enforcement examination generally involves a process whereby examiners conduct interviews of firm employees and consumers and independently review and analyze the records of the licensed entity or other third parties. These examinations are typically broad and/or complex and may take a year or more to complete. The final output will be calculated in the following manner: A. All Enforcement Examinations Closed that were Referred for

Enforcement Action will be identified and counted as follows: i. Enforcement examinations with an Activity Started Date of July 1, 2007

or later and a Status of “Closed” and a Disposition of: • Closed Final Order


• Referred to Legal • Referred to Legal - Closed No Action • Referred to Legal – Closed Notice Non-Compliance • Closed Civil Action • Referred to Legal – Department Of Administrative Hearings (DOAH)

No Violations • Closed Criminal Conviction • Referred to Prosecutor • Referred to Prosecutor – No Action • Referred to Prosecutor – Closed PTI (Pre-Trial Intervention) • Referred to Prosecutor – Acquitted

ii. The Status Date must be within the current fiscal year. B. Once the universe of Enforcement Examinations Closed that were

Referred for Enforcement Action is identified and counted, those Enforcement Examinations Closed with a Referral that resulted in Enforcement Action will be identified and counted in the following manner:

Enforcement Examinations Closed with a Referral to Legal that resulted

in Enforcement Action are identified and counted as follows: All enforcement examinations identified in Item A with a Disposition of:

• Closed Final Order • Closed Civil Action • Referred to Legal – DOAH No Violations • Closed Criminal Conviction • Referred to Prosecutor – Closed PTI • Referred to Prosecutor – Acquitted

C. The measure will be calculated by taking Item B (Enforcement

Examinations Closed with a Referral to Legal that resulted in Enforcement Action) and dividing it by Item A (All Enforcement Examinations Closed with Referred to Legal for Enforcement Action during the fiscal year.)

Validity: Due to the increased number of registrants and the relatively unchanged level of staffing, Securities Regulation has employed an analytical approach in targeting examinations. All examinations will be conducted on a risk-based approach using information obtained from other regulatory agencies (Central Registration Depository (CRD) and Investment Advisor Registration Depository (IARD)), complaints, and public sources such as advertisements and seminar invitations. Enforcement examinations will typically involve criminal activity, more egregious sales practice abuses, and will be broad in scope. Enforcement examiners generally will be those examiners with more experience and analytical skills. This classification will enable the examiners to concentrate on enforcement


examinations so that their time and talents are used most efficiently and allow the examinations to proceed in a timely manner. Reliability: Information will be retrieved from the agency’s ATS via query with data converted to Excel. The agency will utilize Excel Pivot Tables to capture and group the data each quarter. These tables will be updated each quarter to reflect any entries made to prior periods. At the end of the fiscal year, all affected areas of the agency will make final entries to ATS with the understanding that anything not captured as of the agency designated cut-off point will not be reported.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900570 Securities Regulation Measure: Percentage of compliance examinations resulting in action Action (check one):


Data Sources and Methodology: The measure will report the total number of compliance examinations completed during the current fiscal year. The percentage will be computed by dividing the number of compliance examinations completed during the fiscal year with action by the total number of compliance examinations completed. All examinations are tracked in the agency’s Activity Tracking System (ATS) and will be categorized as compliance or enforcement. Compliance examinations will generally be commenced if (1) a risk has been identified that suggests violations of statutes or rules or there might be future loss of customer funds or other investor harm; (2) the scope and/or complexity of the examination is such that it is expected that it can be completed in 180 days or less; and (3) the potential for customer harm is not significant. A compliance examination generally involves a process whereby examiners conduct an interview of firm employees, complete the appropriate examination module(s) or report, and independently review firm records. The final output will be calculated in the following manner: A. All Compliance Examinations Closed during the fiscal year will be identified

and counted as follows: All Compliance Examinations Closed will be the sum of: i. All Compliance Examinations with a Status of “Closed” and a Status Date

within the current fiscal year; and ii. All Compliance Examinations with a Status of ”Open” and a Disposition

of “Referred to Enforcement Exam,” “Referred to Legal” and a Disposition Date within the current fiscal year.

B. Once the universe of Compliance Examinations Closed during the fiscal year have been identified and counted, those Compliance Examinations Completed with Action will be identified and counted in the following manner:


Compliance Exams Completed with Action are those examinations identified in item A that have a disposition of: • Closed Final Order • Closed Civil Action • Referred to Legal – Department Of Administrative Hearings (DOAH) No Violations • Closed Criminal Conviction • Referred to Legal – Closed Notice of Non-Compliance • Closed Criminal Conviction • Referred to Prosecutor – Closed PTI (Pre-Trial Intervention) • Referred to Prosecutor – Acquitted • Closed Registration Agreement • Closed Notice of Non-Compliance

B. The measure will be calculated by taking Item B (Compliance Examinations Completed with Action) and dividing it by Item A (all Compliance Examinations Closed.)

Validity: Due to the increased number of registrants and the relatively unchanged level of staffing, Securities Regulation has employed an analytical approach in targeting examinations. All examinations will be conducted on a risk-based approach using information obtained from other regulatory agencies (CRD Data Download and IARD customized reports), complaints, and public sources such as advertisements and seminar invitations. This approach should identify those entities that pose a risk and examiners can concentrate their efforts on those examinations that will bring enforcement actions. Reliability: Information will be retrieved from the agency’s ATS via query with data converted to Excel. The agency will utilize Excel Pivot Tables to capture and group the data each quarter. These tables will be updated each quarter to reflect any entries made to prior periods. At the end of the fiscal year, all affected areas of the agency will make final entries to ATS with the understanding that anything not captured as of the agency designated cut-off point will not be reported.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900570 Securities Regulation Measure: Number of compliance examinations completed Action (check one):


Data Sources and Methodology: The measure will report the total number of compliance examinations completed during the current fiscal year. Completed Compliance examinations are those examinations with a disposition of closed in the agency’s Activity Tracking System (ATS). All examinations are tracked in ATS and will be categorized as compliance or enforcement. Compliance examinations will generally be commenced if (1) a risk has been identified that suggests violations of statutes or rules or there might be future loss of customer funds or other investor harm; (2) the scope and/or complexity of the examination is such that it is expected that it can be completed in 180 days or less; and (3) the potential for customer harm is not significant. A compliance examination generally involved a process whereby examiners conduct an interview of firm employees, complete the appropriate examination module(s) or report, and independently review firm records. The following status and dispositions will be used to compute the final output: A. All Compliance Examinations Closed during the fiscal year will be identified

and counted as follows: The sum of: i. All compliance examinations with a Status of “Closed” and a Status

Date within the current fiscal year; and ii. All compliance examinations with a Status of “Open” and a

Disposition of “Referred to Enforcement Exam,” “Referred to Legal” and a Disposition Date within the current fiscal year.

Validity: The goal of the compliance examination will be to: gather information on the identified risk; mitigate the risk through facilitating changes in the way the broker dealer, investment adviser, or agent operates; and, if appropriate, take administrative action. Compliance examiners are expected to complete a


compliance examination within 180 days or refer it to an enforcement examination. This approach is expected to allow compliance examinations to proceed in a timely manner, thereby furthering the confidence of the investing public. Reliability: Information will be retrieved from the agency’s ATS via query with data converted to Excel. The agency will utilize Excel Pivot Tables to capture and group the data each quarter. These tables will be updated each quarter to reflect any entries made to prior periods. At the end of the fiscal year, all affected areas of the agency will make final entries to ATS with the understanding that anything not captured as of the agency designated cut-off point will not be reported.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900570 Securities Regulation Measure: Percentage of compliance examinations closed or referred to the Office of Legal Services or referred to Enforcement examinations within 180 days Action (check one):


Data Sources and Methodology: The measure will report the percentage of compliance examinations closed or referred to enforcement examinations within 180 days of the examination activity started date. All examinations will be marked in the Activity Tracking System (ATS) as compliance or enforcement. Completed compliance examinations are those examinations with a disposition of closed or a status of referred in ATS. Completed compliance examinations will also have a disposition date that is within the current fiscal year. Compliance examinations will generally be commenced if (1) a risk has been identified that suggests violations of statutes or rules or there might be future loss of customer funds or other investor harm; (2) the scope and/or complexity of the examination is such that it is expected that it can be completed in 180 days or less; and, (3) the potential for customer harm is not significant. A compliance examination generally involves a process whereby examiners conduct an interview of firm employees, complete the appropriate examination module(s) or report, and independently review firm records. The final output will be calculated in the following manner: A. All Compliance Examinations Closed during the fiscal year will be identified

and counted as follows: All Compliance Examinations Closed will be the sum of: i. All compliance examinations with an Activity Started Date of July 1, 2007

or later, and a Status of “Closed” and a Status Date within the fiscal year; and

ii. All Compliance examinations with an Activity Started Date of July 1, 2007 or later, and a Status of “Open” and a Disposition of “Referred to Enforcement Exam,” “Referred to Legal” and a Disposition Date within the current fiscal year.


B. Once the universe of Compliance Examinations Closed during the fiscal year have been identified and counted, those Compliance Examinations Closed within 180 days will be identified and counted in the following manner:

Compliance Examinations Closed within 180 days are Compliance Examinations Closed as set forth in Item A, in which the time elapsed between the Disposition Date and the Activity Started Date is 180 days or less.

C. The measure will be calculated by taking Item B (Compliance Examinations Closed within 180 days) and dividing it by Item A (all Compliance Examinations Closed during the fiscal year.)

Validity: The goal of the compliance examination will be to: gather information on the identified risk; mitigate the risk through facilitating changes in the way the broker dealer, investment adviser, or agent operates; and, if appropriate, take administrative action. Compliance examiners are expected to complete a compliance examination within 180 days or refer it to an enforcement examination. This approach is expected to allow compliance examinations to proceed in a timely manner, thereby furthering the confidence of the investing public. Reliability: Information will be retrieved from the Office’s ATS via query with data converted to Excel. The agency will utilize Excel Pivot Tables to capture and group the data each month and each quarter. These tables will be updated to reflect any entries made to prior periods. At the end of the fiscal year, all affected areas of the agency will make final entries to ATS with the understanding that anything not captured as of the agency designated cut-off point will not be reported.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900570 Securities Regulation Measure: Percentage of consumer complaints closed or referred to a compliance or enforcement examination within 180 days Action (check one):


Data Sources and Methodology: The measure will report the total number of consumer complaints worked that were closed during the fiscal year, or referred during the fiscal year to a compliance or enforcement examination, within 180 days of the Form Received Date located on page two of the Activity Tracking System (ATS) complaint module. Closed or referred complaints are those complaints with a status of closed or a disposition of referred in ATS. A consumer complaint generally involved a process whereby examiners receive a written document from an investor containing allegations of wrongdoing by a current or formerly licensed entity. The examiner will conduct a review of the allegations and analyze the activity that occurred involving the consumer’s funds. The examiner will also typically interview the consumer and other individuals that are the subject of the complaint. The final output will be calculated in the following manner: A. All Consumer Complaints Closed during the fiscal year will be identified and

counted as follows: All Consumer Complaints Closed will be the sum of: i. All Consumer Complaints with a status of “Closed”; and ii. All Consumer Complaints with a status of “Open” and a Disposition

of “Referred to Enforcement Exams,” “Referred to Compliance Exams,” or “Referred to Legal”

B. Once the universe of Consumer Complaints Closed during the fiscal year have been identified and counted, those Consumer Complaints Closed within 180 days will be identified and counted as follows:

Consumer Complaints Closed within 180 days are Consumer Complaints Closed, as set forth in item A, in which the time elapsed between the disposition date and the form received date is 180 days or less. In addition, the disposition date must be within the current fiscal year.


C. The measure will be calculated by taking Item B (Complaints Closed within 180 days) and dividing it by Item A (All Complaints Closed during the fiscal year).

Licensed entity is defined as licensed agents and firms. Validity: Compliance examiners are expected to complete their review of consumer complaints within 180 days or initiate an examination of the firm or associated person. This approach is expected to allow the review of customer complaints to proceed in a timely manner, thereby furthering the confidence of the investing public. Reliability: Information will be retrieved from the Office’s Activity Tracking System (ATS) via query with data converted to Excel. The agency will utilize Excel Pivot Tables to capture and group the data each month and each quarter. These tables will be updated to reflect any entries made to prior periods. At the end of the fiscal year, all affected areas of the agency will make final entries to ATS with the understanding that anything not captured as of the agency designated cutoff point will not be reported.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900570 Securities Regulation Measure: Percentage of filing requests processed within a designated standard number of days (standard based on type of filing) Action (check one):


Data Sources and Methodology: The Office has determined, as designated in the chart below, the standard number of days to process filings/requests processed by the Office. The Office shall compute the percentage of filings/requests processed within the designated standard number of days to process for each type of filing or request. The percentage will be computed by dividing the number of filings/requests processed within the designated standard days by the total number of filings/requests processed within the period. The overall percentage will be calculated based on the total of all filings/requests processed within the standard number of days divided by the total of all filings/requests processed. Filings include: Applications for firms, branches and agents; renewals for firms, branches and agents (captured within the Departmental Licensing System (DLS)); public records requests, and compliance notices (i.e., amendments and terminations). Public Records Requests include: CRD snapshots, certificates of registration or non-registration, copies of files, and other public information requested from the Office. Processing times are calculated as follows:

• For applications and compliance notices, the days to process will be calculated from the received date to final status date.

• For paper renewals, the days to process will be calculated from the validation date of the renewal fee to date license printed.

• Electronic renewals are processed automatically through the Central Registration Depository (CRD)/Investment Advisor Registration Depository (IARD) systems of FINRA (Financial Industry Regulatory Authority).

• For public records requests, the days to process will be calculated from the received date of the request to the date the Office responds to the request.


Sources of data will be the Department Licensing System (DLS), Microsoft Access, and Microsoft Excel. Hypothetical Example of computation:

Filing/Request Type Std. days to process

# proc. in std. days

total # processed % processed

Applications - Firms 65 Applications - Branches 45 Applications - Agents 6 Compliance Notices 75 Renewals 15 Public records requests 30 300 500 60.00% % PROCESSED WITHIN STANDARD

60.00%

Validity: This measure will address efficiency in handling of filings/requests in an effort to improve processing time assuming conditions remain stable. Chapter 120, Florida Statutes, prescribes certain timeframes that must be adhered to when processing applications for registration; however, no statutory or rule requirements exist to dictate time frames for filings/requests not related to an application. It is the goal of the program to improve our processing to better serve the financial services industry and the public. This measure helps to ensure the timely processing of filings/requests. This furthers the agency’s mission to support the regulated industries and customers by providing a timely service to these entities. Reliability: The computations for filings/requests begin with the receipt date, which is manually stamped on original documents upon receipt. All paper filings with associated fees are date stamped by the Department of Financial Services’ Cashier’s Office. All paper filings not associated with fees are date stamped by Office personnel. All electronic filings are recorded as received upon submission to the Office. Data for filings is captured in the DLS and Access databases and then exported to Excel spreadsheets where it is manipulated into the format needed for this computation.


Established standards are as follows: TYPE STANDARD Applications - Firms 65 days from receipt to final action date Applications - Branches 45 days from receipt to final action date Applications - Agents 6 days from receipt to final action date Renewals 15 days for ministerial (basic) renewals Compliance Notices 75 days from receipt to completed date Public Records Requests 30 days to process from receipt to mail out

*standard days to process established Fiscal Year 2006-07


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900570 Securities Regulation Measure: Percentage of applicants not granted registration in the securities industry in Florida who subsequently are the subject of additional regulatory disclosure. Action (check one):


Data Sources and Methodology: To compute this measure agents are identified who previously applied for registration through the Central Registration Depository (CRD) who were denied or withdrew from this state and cross-reference them to the national CRD database to identify additional disclosure events appearing on their record. Disclosure events reported within a three-year span subsequent to the date of withdrawal/denial in Florida will be considered. This includes any disclosure information reported by the state of Florida, other jurisdictions (state, federal, etc.), or individual. The percentage will be computed by dividing the number of applicants denied or withdrawn (three years ago) who have since had additional disclosure events reported on the CRD by the total number of applicants who were denied/withdrawn (three years ago). This measure will demonstrate OFR’s licensing effectiveness by identifying the percentage of applicants not registered who are subsequently the subject of regulatory disclosure in Florida or elsewhere which could have potentially caused detriment to Florida’s investing public. An application is denied when it fails to meet the Office’s standards for registration and/or when the applicant fails to complete an application as required. A withdrawal occurs when the applicant voluntarily retracts the application, typically after notification by the Office’s that the application is insufficient. Validity: This measure focuses on licensing effectiveness by tracking what subsequently happened with applicants who did not meet OFR’s criteria for registration in this state. A baseline of 59% was established based on actual results for Fiscal Year 1997-1998. This result indicates that 59% of applicants who were denied or withdrew during Fiscal Year 1994-1995 had additional disclosures reported on the CRD subsequent to their denial/withdrawal in this state.


Reliability: Disclosure information on firms/individuals registered throughout the U.S. is centralized on the national CRD database. Submissions are made by the Securities and Exchange Commission, states, self-regulatory organizations, securities firms and associated persons for input into this system as actions occur and are subsequently available for on-line access and review by all state regulators.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900570 Securities Regulation Measure: Percentage of license applications processed within Administrative Procedures Act requirements Action (check one):


Data Sources and Methodology: This measure reflects the percentage of applications where the Office processed applications for registration within the timeframes required by the Administrative Procedures Act (Chapter 120.60, Florida Statutes). The Administrative Procedures Act (APA) requires state agencies that process applications for registration to advise applicants of any deficiencies in the application within 30 days of receipt of the application. If the agency has complied with this requirement and the applicant does not complete the application within the time frame prescribed in the deficiency letter, the agency may technically deny the application for failure to complete the application. In the event the agency does not issue a deficiency letter within the 30 days, the agency cannot technically deny the application and must consider the application complete upon receipt. Furthermore, the APA requires that the agency approve or deny an application within 90 days of completion of the application. The percentage will be computed by dividing the total number of applications processed within the APA guidelines during the year by the total number of applications processed during the year. Types of applications included in this measure: firms, branches, and associated persons. Applications will be retrieved from the Departmental Licensing System (DLS) and Microsoft Access. Validity: This measure helps to ensure the timely processing of all applications and compliance with state law. This furthers the agency’s mission to support the regulated industries and customers by providing a timely service to these entities and individuals. Reliability: Data will be captured and reported quarterly. The division tracks applications in the Departmental Licensing System and Microsoft Access.


LRPP EXHIBIT IV: Performance Measure Validity and Reliability Department: Financial Services Program: Financial Services Commission/Office of Financial Regulation Service/Budget Entity: 43900570 Securities Regulation Measure: Number of actions taken as a result of licensing substantive review. Action (check one):


Data Sources and Methodology: This measure reflects the number of formal actions issued regarding applications that, based on a substantive review, were either denied or granted registration pursuant to a stipulation and consent agreement or a registration agreement. Types of applications included in this measure: firms, branches, and associated persons. Actions taken will be retrieved from the Office’s Activity Tracking System (ATS) and Microsoft Access. Applications will be retrieved from the Departmental Licensing System (DLS) and Microsoft Access. Validity: This measure provides an indication of the effectiveness of the licensing program by highlighting those entities and individuals that have disciplinary disclosure events that are grounds for action under the statutes. The licensing standards in effect have had a significant impact on the legitimacy of the financial services industry in the State and the protection of consumers of the State. Historically, the number of formal actions against applicants has remained very low. If this number should rise at any given point, the Office will take action to review and adjust licensing standards where necessary to continue to provide legitimacy to the industry as well as protect consumers. Reliability: Data will be captured and reported quarterly. The year-end number will be computed based on a year-to-date total of actions taken as retrieved from the Activity Tracking System (ATS) and Microsoft Access.


LRPP Exhibit V: Identification of Associated Activity Contributing to Performance Measures

43900530 Safety & Soundness of State Banking System

Measure Number


(Words) Associated Activities Title

1 Percent of applications for new Florida financial institutions that seek state charters

Examine and enforce laws regarding banks, trusts and credit unions to ensure safety and soundness

2

Percent of Florida state chartered credit unions that exceed the median of all national/federal credit unions chartered in Florida on return on equity


3 Percent of banks receiving an examination report within 45 days after the conclusion of their onsite state examination


4

Percent of credit unions receiving an examination report within 30 days after the conclusion of their onsite state examination


5 Percent of de novo applications statutorily completed that are processed within a standard number of 90 days


6 Percent of surveys returned that rate the Division’s examination program as satisfactory or above


7 Number of domestic financial institutions regulated

Promote Florida's domestic and international financial services industries

8 Number of international financial institutions regulated

Promote Florida's domestic and international financial services industries

43900540 Financial Investigations

Measure Number



1 Percentage of investigative case referrals that result in enforcement action

Conduct financial investigations into allegations of fraudulent activity

2 Percentage of documented violations that were referred for action


3 Number of financial investigations closed



43900560 Finance Regulation

Measure Number



1 Percentage of licensees examined where agency action is taken

Examine and regulate financial services entities to ensure regulatory compliance

2 Percentage of licensees examined on a for-cause basis where agency action is taken for violations


3 Percentage of licensees examined on a routine basis where agency action is taken against the licensee for violations


4 Number of for-cause examinations completed


5 Number of routine examinations completed


6 Percentage of license applications processed within Administrative Procedures Act requirements

Evaluate and process applications for registration as a financial services entity

7 Percentage of filing requests processed within a designated standard number of days (standard based on type of filing)


8 Number of formal actions taken as a result of licensing substantive review process


43900570 Securities Regulation

Measure Number



1 Percentage of enforcement examination referrals that result in enforcement action

Examine and regulate securities entities to ensure regulatory compliance

2 Percentage of compliance examinations resulting in action


3 Number of compliance examinations completed



4

Percentage of consumer complaints closed or referred to the Office of Legal Services or referred to enforcement examination within 180 days


5

Number of consumer complaints closed or referred to a compliance or enforcement examination within 180 days


6 Percentage of filing requests processed within a designated standard number of days (standard based on type of filing)

Evaluate and process applications for registration as a securities industry entity

7 Percentage of applicants not granted registration in the securities industry in Florida who subsequently are the subject of additional regulatory disclosure


8 Percentage of license applications processed within Administrative Procedures Act requirements


9 Number of actions taken as a result of licensing substantive review process



LRPP Exhibit VI: Agency-Level Unit Cost Summary

The LRPP Instructions require that Exhibit VI be submitted at the Department level so OFR’s unit cost data is rolled up into the Department of Financial Services Exhibit VI. Listed below is the data for OFR measures that are not rolled up in to the DFS measures.

SECTION II: ACTIVITIES * MEASURES Number of Units

(1) Unit Cost

(2) Expenditures

(Allocated) Examine And Regulate Financial Services Companies To Ensure Regulatory Compliance. * Examinations of financial services companies to determine compliance with regulations.

526 $25,375.55 $13,347,541

Evaluate And Process Applications For Licensure As A Financial Services Entity. * Applications processed for evaluation for licensure as a financial services entity.

107,310 $88.54 $9,501,763

Examine And Enforce Laws Regarding Banks, Trusts, And Credit Unions To Ensure Safety And Soundness. * Number of domestic financial institutions

156 $73,015.65 $11,390,441

Examine And Enforce Laws Regarding International Financial Institutions To Ensure Safety And Soundness. * Number of international financial institutions

19 $38,571.32 $732,855

Conduct Financial Investigations Into Allegations Of Fraudulent Activity. * Number of financial investigations into allegations of fraudulent activity.

167 $35,391.17 $5,910,327

The complete exhibit may be found at: http://www.flofr.com/Director/OFRLRPP.pdf

financial services commission office of financial regulation

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