It can be difficult to plan for compliance over the short term. As the Banking Compliance Index shows, one quarter might bring a deluge of new regulations, while the next will be relatively light. One thing is certain -- with 223 regulatory changes in the first three quarters of 2014, the sheer volume of change is moving compliance higher and higher on the agenda for community financial institutions.
When you step back and take a look at the big picture, though, it's easier to spot and prepare for long-term trends. As 2015 gets started, here are three compliance trends community bankers should be ready for in the year ahead.
1. Fostering a culture of compliance will become increasingly important.
Often banks have managed compliance issues on an ad hoc basis. If word got out that regulators were cracking down on rewards accounts, bank leaders would go to great pains to make sure their rewards accounts -- and just their rewards accounts -- were in good shape. Though regulations have grown in number and complexity, many financial institutions have continued to manage compliance in this highly manual, reactive way, expecting the influx of new rules to eventually die down.
However, it's becoming clear that the regulatory drawdown many were hoping for is not going to happen. An unpredictable and constantly shifting regulatory landscape is the new normal, and banks need to be prepared to prove strict compliance on all fronts at any time. There needs to be a shift from spotty, reactive compliance tasks to an intentional and holistic process of compliance.
[For more compliance coverage: Compliance Burden Increasing, But Bankers Don't Feel It]
How can banks do that? Fostering a bankwide culture of compliance is key, as shown by recent industry guidance from the Federal Reserve, FinCen, and Baker & McKenzie. A commitment to compliance in all areas must be demonstrated from the top down, with your bank's C-suite and board of directors leading the charge. Make a point of rewarding employees who further your bank's compliance goals, and constantly look for areas where your efforts can be improved.
2. Regulators will insist on formal compliance structures, regardless of institution size.
More and more, inspectors are cracking down on banks -- big and small -- that can't demonstrate sound, consistent compliance procedures across all areas. They're also looking for strong board-level involvement and detailed documentation of all things related to compliance.
Formalizing your institution's processes is paramount these days, and it's easier than most people think. It's really just about going through all your compliance areas (risk assessment, policies, procedures, monitoring) and ensuring that there are well-documented, uniform processes in place across the entire bank. In most cases today, this is a heavily manual process that desperately needs to be automated, and it can be done easily.
As a bonus, having these formalized processes in place allows your bank not only to avoid enforcement actions, but also to improve its business in general. The added structure can help you pinpoint and correct for inefficiencies, as well as reduce continuity risks associated with personnel changes. When structured correctly, compliance procedures can force you into behaviors that are simply the right thing to do.
3. Automation will become an inevitable necessity.
With thousands of pages of regulatory changes coming down the pipeline every quarter, it's increasingly difficult for banks to manage compliance manually. Additionally, regulators are aware of the difficulties and errors that can result from paper-based compliance systems, and there's a greater expectation these days that banks deploy as much automation as they can.
Automation can seem expensive at first, but it's usually a cost saver if banks look at the big picture. Manual compliance processes contain a lot of hidden costs, including the price of the opportunities sacrificed when compliance-occupied employees cannot work on profit-driven efforts. Automation can also reduce compliance errors that could lead to costly enforcement actions down the road.
When choosing an automation solution, banks can piece together various piecemeal programs, but the real key to solving the compliance problem lies in the transition from "compliance as a project" to "compliance as a process" across the institution. A holistic solution will be inclusive of all institution employees who play a role in compliance, from the board to the teller. It also means employees won't have to learn multiple programs, and IT professionals won't have trouble getting different programs to interact with one another. There are significant cost and risk savings to be had in automating the compliance process, so whatever solution is chosen, it must be able to demonstrate these savings in a clear way -- and as quickly as possible.
It's hard to say whether 2015, relative to recent years, will bring a light or heavy influx of regulations. What is clear, though, is that banks are under much more stringent scrutiny in how they manage compliance. Therefore, they must adapt to a regulatory environment that's prone to constant change and increased scrutiny. Automated systems, formal processes, and an institution-wide commitment to compliance will be key to banks' success in 2015 and beyond.
Andy Greenawalt, is a co-founder and the CEO of Continuity Control, a compliance management system for community financial institutions (http://www.continuity.net). He can be reached at 866-631-5556 or [email protected] View Full Bio