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This Is Not Your Grandparents’ Compliance

By: Andy Greenawalt

In many ways, we all have it so much easier than our grandparents did. We have the Internet, email, cell phones and microwaves — lots of what we call modern conveniences.  But in the banking industry, this does not necessarily hold true. In the fight to stay afloat, small and mid-sized banks and credit unions cannot manage compliance requirements the way they once did. The methods of ensuring a financial institution was compliant in our grandparents’ day would surely fail today.

The answer to survival lies in revitalizing outdated processes with automation, which is not only available, but has also proven extremely feasible for institutions of any size.  A modern approach to compliance combines innovative technology with trained professionals who can interpret regulations to accurately and securely modify systems to meet them as they change. In the midst of financial reform, the growing number of new and modified regulations requires community banks to take steps to reduce the workloads and the associated expense of being compliant.

Given the current financial landscape, IT research and advisory firm Gartner predicts tier three and four financial institutions will be priced out of the market with compliance regulations by 2013. The biggest challenge facing smaller banks is scale. The financial expenditure needed to comply with each additional regulation is a drop in the bucket for a megabank, which can spread the expense over hundreds or thousands of branches to absorb the increasing cost.  However, each community-based financial institution, often with less than 10 branches, must individually take on the cost in its entirety; making competition, and often survival, nearly impossible. The gap created by this scale leverage is detrimental to not only to community financial institutions, but also to the entire banking industry.
Our grandparents’ community bank or thrift did not encounter the extreme expenses that are now a mainstay in today’s financial environment. Deloitte reports the cost of compliance is growing at a rate of 15 percent per year, and according to its 2010 research survey, the nation’s top 100 financial institutions will spend more than $100 billion to implement risk governance frameworks by 2012. Furthermore, most survey respondents expect spending on risk and compliance to continue to rise.

Executives at many financial institutions have resigned themselves to the reality of their two options — merge or die.  However, with the advent of advanced technology, there is now a viable alternative to consider.  Community banks can collaborate in an effort to meet compliance requirements and reach the scale of the megabanks.  The mechanics of disseminating knowledge today are powerful, and there is technology that allows institutions to organize and share information to combat the scale issue threatening both small institutions and the industry as a whole.

Meeting compliance requirements looks nothing like it once did. The sheer volume and detail of regulations requires the utmost attention and accuracy.  Vendors offering a winning combination of technological and human expertise remove the burden of compliance from bankers and their IT staff. Technology must clearly accomplish a business objective — and compliance automation does just that.  It enables financial institutions to achieve their business goals despite the changing and challenging regulatory and economic landscapes.

According to internal research with several financial institutions, a $150 million asset bank saves more than $8,500 annually simply by implementing automation strategies to manage compliance requirements. Completing the work to satisfy Office of Foreign Assets, currency transaction report and suspicious activity report requirements can cost upwards of $2,800. By enlisting advanced technology, however, a financial institution can reduce this cost to just $600 annually. Similarly, examination preparation alone runs over $2,000 when handled manually, but the rate is less than $500 when using automation technology.

Compliance automation tools enhance overall productivity by facilitating third-party audits, employee training, risk assessments, consulting and program development, which largely make up a financial institution’s most costly tasks.  By simply subscribing to the necessary controls that standardize the work of being compliant, banks can decrease time and resources needed to consistently remain up-to-date with regulatory changes.

Federal compliance and regulations must be handled differently in today’s challenging financial environment. The economic reality requires community banks to compete with megabanks or face extinction.   New techniques designed to navigate regulatory changes for a fraction of the cost allow bankers to go back to being bankers; to go back to serving their communities and focusing on recovery. Besides, most grandparents want their children and children’s children to achieve more than they did. With the right technology, this becomes a reality.

Andy Greenawalt is the founder and CEO of Continuity Control, New Haven, Conn. For more information, visit

Copyright © February 2011 BankNews Media