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Regulators Crack Down Ahead of Basel III

 

April 16 - Compliance regulators continued to vigorously pursue enforcement actions against community financial institutions in the first quarter of 2014, issuing 165 enforcement actions—a 23 percent increase over last quarter, according to the latest Banking Compliance Index.

The index—compiled and analyzed by experts at Continuity Control, a New Haven, Conn.-based provider of compliance management systems—shows that financial institutions dealt with 66 new regulatory items in the first quarter. To cope with just the extra regulatory load, the average community bank needed the equivalent of 1.69 extra full-time employees and spent an additional $37,621.

Furthermore, many of the enforcement actions in the first quarter involved safety and soundness issues, signaling that regulators are moving beyond specific violation citations and focusing on community banks’ overall compliance management processes.

“It’s clear that regulators now expect banks and credit unions to approach compliance management with a more sophisticated eye,” says Pam Perdue, executive vice president, regulatory insight, at Continuity Control and a former federal examiner. “Community financial institutions must invest in the ability to demonstrate greater familiarity with regulations, consistent metrics and board involvement. It’s no longer enough for bankers to simply know how to stay compliant; they’ve got to prove that there’s an effective, robust system in place.”

When compared to the first quarter of 2013—a record-setting year for regulatory increases—growth of the regulatory burden slowed slightly in Q1 2014. However, the compliance workload will continue to increase for community financial institutions this year, Perdue says, particularly for those that have yet to prioritize compliance.

“Things appear to have steadied a bit, but that’s certainly not a signal to relax,” Perdue says. “In 2014, with a focus shift to Basel III, there will be much attention placed on capital frameworks, which means the people on the fiscal side of the house are going to have a busy year. In addition, the pace and complexity of regulatory change—along with a push for regulatory professionals to reside at the senior levels of organizations—is raising salaries for experienced compliance officers.  This, in turn, is putting a strain on community financial institutions to attract and retain qualified personnel, particularly in non-urban areas. Large banks have the capacity and resources to handle these challenges efficiently, but smaller institutions continue to feel the heat of the current regulatory environment.”

About the Banking Compliance Index

The BCI employs a data-driven approach to provide unique insights into the depth and breadth of the regulatory compliance workload impact measured in terms of a Full-Time Employee Consumption Score.  

The BCI is calculated each quarter using a multivariate analysis that can be weighted across different contexts and is calibrated to determine the regulatory impact on financial institutions of varying sizes, product mixes, and regulatory oversight. Using key indicators including volume, velocity and complexity of regulatory change; time expended to meet regulatory requirement(s); and supervision and the enforcement climate, the BCI’s sophisticated metrics are unmatched in the industry.

The BCI is driven off metrics such as:

·       Regulatory Changes: A total count of applicable financial regulatory changes throughout the quarter.

·       Page Volume: The number of pages associated with each of the regulatory changes—indicative of the complexity and workload involved with reviewing and interpreting each change.

·       Enforcement Action Information (EA): Analysis of the public enforcement actions that have been issued during a quarter.

More than 725 financial institution professionals attended the Continuity Control RegAdvisor Quarterly Briefing webcast Thursday, April 10. During this session, regulatory experts reviewed the Q1 2014 BCI metrics and provided in-depth information on the quarter’s regulatory changes, a workload assessment of these changes and the required actions to avoid penalties. A recording of this session is available at http://info.continuity.net/q1-2014-regadvisor-briefing.

About Continuity Control

Continuity Control is an award-winning Compliance Management System (CMS) that has been engineered to help community financial institutions reduce the time, cost and risk impacts of regulatory compliance. This single, unified system automates the entire regulatory lifecycle – managing updates, policies, procedures, risks, vendors, audits, business continuity and exam preparation along with compliance strategy and planning. Built by bankers and former examiners, the system’s advanced software has been coupled with expert personalized service to help financial institutions quickly adapt to regulatory change, streamline the workload and ensure compliance. Continuity Control is the exclusive ICBA Preferred Service Provider for a CMS solution. For more information visit www.continuity.net.


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