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Doing Compliance Differently

By: Andy Greenawalt

In what is widely known as the most costly and burdensome regulatory environment in history, community bank executives are recognizing the need to adapt in new ways. In the first half of this year alone, hundreds of regulatory changes and enforcement actions have driven a significant bump in compliance costs — approximately $80,000 per institution. As such, today’s banks are realizing that traditional methods of tackling compliance are preventing them from keeping up with the pace of change and impeding their ability to invest in other areas of the business.

In an effort to get compliance under control, forward-thinking bankers are applying new strategies to ease their burdens. Many are implementing intelligent technology-based systems that improve how regulatory changes are interpreted and managed, that reduce resource requirements and that foster a culture of compliance across the organization.

The Time for Technology Is Now

Most areas of banking rely on technology with one important exception — compliance. For decades, this function of the business has remained predominantly unsophisticated despite the waterfall of regulatory changes that have made it difficult to keep pace. However, a trend is emerging in which many community bank executives are recognizing that now is the time to transition to technology-enabled compliance management.

For Tammy Stephens, first vice president of Peoples Bank in North Carolina, managing compliance manually simply became too much to handle, which drove her toward using technology. “The way we were doing things before was very manual and reactive,” said Stephens. “Our employees were waiting for things to be found by examiners or auditors. Through using technology, we’ve been able to put a centralized system in place that is proactive and makes compliance easier for everyone — all while giving us the assurance we need that we’ve gotten everything done.”

Robert Hemsath, president and CEO of Security First Bank in California, had similar challenges, which were requiring more costly resources. As a result, he turned to technology to help streamline compliance processes and reduce costs.

“Banking has always been a regulated environment, but it’s kind of on steroids these days,” said Hemsath. “I either had to increase my full-time employee base to keep up with and implement all the regulatory changes, or take a completely different approach, one where we could leverage technology and work with somebody that offered us a team of experts.”

Quantifiable Benefits

Both banks are seeing benefits in areas like FTE reduction, time and cost savings, greater efficiencies and better management of regulatory changes.

“We will get by on one-half of an FTE less than what we were going to need before we invested in technology, and that’s a conservative estimate,” said Ray Altmix, president and CEO of Bank of Marion in Illinois. “Through our technology provider, we also have one-on-one relationships with experienced former examiners and regulators who are now able to tell us not just what’s wrong, but also how to fix it. It makes life so much easier.”

The cost savings alone have made the conversion to technology worthwhile, according to Hemsath. “We were able to eliminate about 1 ½ FTEs, which equates to approximately $120,000 per year in savings, and we save another $20,000 in audit expenses,” he said.

Change Isn’t as Difficult as it Seems

Many bank executives continue to be hesitant about converting to technology-based compliance management simply because it is a major departure from traditional thinking. Executives who have made the leap, however, say the transition has been smooth and claim the pros far outweigh any cons.

“This type of technology is something that most every community bank should consider, at least to see if it suits their unique situation,” said Altmix. “Based on what I see from a regulation standpoint, this is not going to get easier. It’s going to get much more complicated. The expectations of our regulators are going to be higher than ever, and in my view, compliance management technology is the future of how banks will deal with these compliance issues.”

According to Hemsath, banks have not invested in technology thus far because the compliance side of banking is not a money maker. “Compliance has always been something you did because you had to,” he said. “Therefore, those dollars were being used to drive the other side of the income statement. I believe that’s changing now. Banks have to find efficiencies everywhere because the ability to grow top line revenue has been severely hindered and compliance costs have gotten so high.”

The Future Is Here

Progressive community bank executives see the future of compliance management being largely technology-enabled and view this trend as one that all community banks should consider. It takes the guesswork out of managing regulatory changes, gives bankers the ability to reduce resources and allows compliance managers to refocus on risk management activities that add real value.

“We have identified about 30 items and processes that we previously handled manually but will be using our technology platform to manage,” said Stephens. “In the future, we see our compliance technology as a broader back-office project management solution — one that will enable us to gain efficiencies in many areas of the business.”

Andy Greenawalt is the co-founder and CEO of Continuity Control ( He can be reached at 866-631-5556.

Copyright (c) November 2013 by BankNews Media