There is a widely held misconception that post-Dodd-Frank compliance will require banks to spend a majority of their resources to uphold compliance. This commonly held belief is preventing many bankers from making the best long-term decisions for their institutions. Statistics compiled by the regulatory operations center at Continuity Control indicate that the average community bank is projected to spend $200,000 in 2012 on compliance costs alone. However, in actuality there is an inverse relationship between a bank’s compliance expenditures and its compliance performance. By effectively organizing programs and choosing modern technology, banks of any size can properly manage the changing regulatory landscape and increasing government oversight. It is possible to achieve the ultimate goal of completing more with fewer resources. While it seems paradoxical, you can do more by doing less.
As manual processes increasingly become automated, it is important that compliance activities are also updated. Banks use technology to improve efficiencies and services across all departments, so they must commit to adopting modern compliance strategies, too. Financial institutions’ compliance concerns extend beyond the incredible volume of regulations to the velocity at which they are being established.
In 1991, financial institutions were charged with just one major compliance regulation to implement, the Truth in Savings Act — yet, by 2011, the number of new rules escalated to 78. This acceleration is preventing banks from maintaining the pace with requirements using traditional methods. Typically, banks depend on governance/risk/compliance and enterprise risk management solutions, systems readily available, for their compliance needs. These solutions, however, are designed for large institutions, and tailoring them to accommodate community banks can generate outrageous expenses, while still leaving significant gaps in compliance fulfillment.
There is an array of software solutions that banks can implement to solve very specific issues. But using that approach can often require an immense investment of time and money to assemble and deploy the solution, and then train employees on its use. This method actually increases the workload.
Banks must rely on a comprehensive solution to organize all compliance tasks, resolving the burden that additional regulations create. Having an automated system helps meet regulations on time without sacrificing productivity or valuable resources.
Sadly, it seems that the mismanagement of compliance activities is epidemic among banks today. In addition to the mounting number of regulations and the speed of regulatory change, each rule requires banks to make many internal modifications.
On average, each new regulation can impact 16 bank programs or unique job roles. With the extreme complexity involved in implementing every rule, many are unsure of how to accomplish the necessary tasks and simply do their best with limited knowledge and manpower. Especially as regulatory obligations increase, these tasks must be completed in a timely and accurate manner. To successfully keep up with the status of all compliance assignments, executives need a way to have all activities organized and tracked. Disparate systems for managing compliance not only create additional expenses but also lead to duplication of work. Looking at each regulation singularly is no longer adequate — banks must depend on one solution that can handle compliance matters consistently.
Pulled in many directions, management teams are often heavily focused on adding progressive service offerings to gain a competitive advantage and satisfy customers. However, compliance has become a top priority, and therefore bank leaders must identify compliance as the primary area in need of innovation. Almost all processes are technology driven: from payment processing to account openings to getting a mortgage loan — so is there a reason not to automate compliance, as well?
Seeking to always serve the evolving financial needs of their customers, banks concentrate on offering services in high demand, such as mobile banking and personal financial management. Stretched for time and resources, automating compliance processes creates room to focus on these other areas that are significant to business. Establishing a compliance strategy as a primary objective enables an institution to better focus on delivering the services that improve the financial lives of customers.
Handle the Volume and Complexity
In April 2011, there were seven new, intricate regulations to implement. Managing seven extremely diverse requirements, all with the same deadline, is just one example of the challenges institutions face month after month across an entire institution. A mortgage loan origination rule, for instance, requires so much more than simply changing a line in a disclosure. This one regulation affects a bank in unexpected ways: an institution must modify how payments are received, train employees, update policies and procedures, develop programs for registration, monitor registration — the list continues, and all for just one regulation. With this much work to be done and in light of forthcoming regulations, it seems an easy solution to jump the gun and hire additional staff.
However, technology can more easily, quickly and inexpensively manage the responsibilities associated with new regulations, enabling banks to remain up-to-date as new legislation emerges. Modern systems are capable of assigning tasks to specific employees and tracking and logging compliance work, preparing institutions for all examinations.
Banks cannot simply hope the regulatory challenges will disappear. Nor can they fail to respond to the changes. If they do, their businesses will be at risk. Upcoming regulations are inevitable and successful banks will be those that accept the reality and proactively modify their compliance strategies.
The Dodd-Frank Act mandates more than 200 yet-to-be-written rules. With regulations already spanning hundreds of pages, institutions need outside help to manage these additional requirements. They do not have the luxury of halting business to constantly examine compliance from every angle and restructure their programs accordingly. Instead, a complete solution must be identified; one that enables compliance intelligence — not workload — to cascade through the bank’s programs and resolve the challenges.
Institutions must stop following the misguided notion that meeting compliance in 2012 must involve the addition of personnel and in-house compliance professionals. If your peers are finding smarter ways to handle the multifaceted requirements with technology and you ignore modern methods, your institution will overspend and risk losing a competitive edge.
This is the year to avoid the compliance myths that create further challenges and prevent progress. Instead, preparing for change best positions banks to return the focus to serving the financial needs of their customers and their communities.
Andy Greenawalt is founder and CEO of Continuity Control, a financial technology and consulting company in New Haven, Conn.
Copyright (c) February 2012 by BankNews Media