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Kansas Bankers Focus on Compliance and Regulation
Regulatory burden and ways to deal with it were common themes of speakers at the Kansas Bankers Association’s CEO & Senior Management Forum and Annual Meeting at the Broadmoor in Colorado Springs last month.
Key things bank CEOs should know about regulatory risk in 2013 were listed by Lyn Farrell, managing director at Treliant Risk Advisors:
- The burden has shifted from the consumer to the seller of financial products and services. If you have not noticed already, she noted, there is no more “caveat emptor,” it is now “caveat vendor.” The main reason, according to Farrell, is the complexity of financial products, which makes it harder for consumers to keep up.
- Regulatory fairness will continue to become more “principles based” and less “technically based.” The Consumer Financial Protection Bureau is more concerned about the fairness of your APR than its correctness. “This is going to be trickling down through the other regulatory agencies, Farrell said.
- Don’t assume that longstanding and common products are safe, even if they have been previously scrutinized in an examination. Examples cited by Farrell include overdraft protection programs, add-on products, refund anticipation loans, indirect auto lending practices and debt-collection practices.
- Simpler products are safer. Complexity increases the risk that the consumer will misunderstand the product terms and the likelihood that bank employees will misrepresent the product to the consumers. Simple means fewer bells and whistles, consumer choices, fees and penalties, Farrell explained.
- Institutions perceived to be “good guys” usually will be given the benefit of the doubt by regulators. Signs of a good guy cited by Farrell are attention is being paid at the top; the compliance program is robust and has excellent management reporting; products and services are fair; errors and problems are made transparent and dealt with quickly; and customer problems are self-identified and self-remediated.
- Proactivity is essential. According to Farrell, this means continually scanning for emerging risks; re-thinking older products and practices in light of new regulatory standards; investing in training and promoting a proactive compliance culture.
- The role of CEO has changed; the compliance officer should be your new best friend. Compliance has to start at the top, Farrell advised, with the CEO understanding the general requirements; harmonizing the bank’s leadership styles and culture with the effort to be compliant; engaging with bank leadership to encourage a fairness-focused compliance culture; and encouraging proactive, strategic compliance.
- Winners will be those who are able to be successful at managing compliance risks and controlling the costs. Look for ways to automate the process with available technology, Farrell suggested.
Kansas’ freshman U.S. senator, Jerry Moran, as a member of the Banking Committee hopes to have an effect that will please his banker constituents.
As he sees it, the committee has a lot to do in unwinding parts of the Dodd-Frank Act. “Dodd-Frank wasn’t the end,” in his view. “That’s why I’m on the committee.”
And Moran wants more oversight and accountability applied to the CFPB. It was a mistake, in his opinion, for the Senate to confirm Richard Cordray as permanent director of the agency without changes that have been suggested, such as making it subject to the Congressional appropriations process and governed by a commission or board rather than a single individual.
The American Bankers Association’s vice chairman, John Ickard, advised the KBA members to be aware that some of the CFPB rules are creeping down to community banks. “Regulatory creep is always down,” he said.
Ickard, who is president and CEO of FirstBank Holding Co. in Lakewood, Colo., told the bankers they won a big victory on Basel III by writing to their representatives about the proposed rule’s negative effect on community banks. Members of Congress were moved to talk to the regulators and the result was a less-onerous rule, according to Ickard.
Bill Poquette is editor-in-chief of BankNews.
Copyright (c) September 2013 by BankNews Media