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Risk, Compliance Concerns Remain High for Banks

December 28 — Despite the recent passage of regulatory relief legislation (S. 2155) by the U.S. Congress, 62 percent of respondents to Wolters Kluwer’s Regulatory and Risk Management Indicator reported they “do not anticipate a likely reduction” in regulatory burden in the coming two years.

The survey’s main indicator score was 85, representing continued anxiety on certain risk and regulatory issues that demand close attention. However, there is a notable easing in the anxiety levels of U.S. banks and credit unions in managing their risk and regulatory compliance obligations as compared to the 2017 survey results as the score of 85 is an 18 percent decrease from the same measure in 2017.

“While we see a reduction in the main indicator score, more than 60 percent of respondents continue to rate their compliance concerns as a ‘7 or higher’ on a 10-point scale. It is notable that risk management concerns also remain fairly high, and there is palpable apprehension about several top issues, including cybersecurity, IT risk and credit risk that respondents indicated will receive escalated priority and investment in the coming 12 months,” said Timothy R. Burniston, senior advisor for regulatory strategy at Wolters Kluwer.

The calculation of the main indicator score is based on several factors, including the number of new federal regulations, number of enforcement actions and total dollar amount of fines imposed on banks and credit unions over the past 12 months, and additional information provided by survey respondents. Burniston attributed the lower overall score to notable drops in regulations, enforcement actions and fines, particularly the number of new federal regulations issued during the 2018 survey period compared to the prior year.

“The reductions in these environmental factors influenced the final score considerably,” noted Burniston. “But persistently high levels of concern shown in 6 years of conducting this survey reinforces the recognition that compliance with rules and regulations is still very much part of an ever-evolving risk management landscape that continues to challenge institutions.”

Over the next 12 months, the surveyed institutions said they are most likely to make “moderate to high” investments in updating policies and procedures (78 percent), strengthening risk assessment and controls (77 percent), and training their staff, board of directors and senior management (75 percent) as priorities. The responses indicate a continuing concern about compliance risk management in general and point to the specific areas regulators are likely to scrutinize.

Respondents from all of the market segments surveyed — including banks, credit unions and savings and loans — consistently cited managing changing regulations as a top concern. Of specific regulatory compliance challenges, complying with the looming CECL impairment standard was identified as the top issue, with 73 percent “very or somewhat concerned.” This was followed by fair lending (61 percent), UDAAP (60 percent) and state-issued regulatory requirements (58 percent). Additionally, managing Home Mortgage Disclosure Act obligations and implementing TILA RESPA Integrated Disclosure (TRID) regulations continue to be among the top compliance challenges cited. Forty-three percent of the respondents indicated they have seen a slight or considerable increase in examiners’ scrutiny of their fair lending programs, a level of consistent with prior indicator findings.

Staff and investment resourcing continued to be pressure points, with respondents citing inadequate staffing for compliance (44 percent), manual compliance processes (42 percent), and too many competing business priorities (42 percent) as top obstacles to implementing an effective compliance program.

This year saw a slight uptick in concerns around accurately capturing additional data fields for the HMDA rules (62 percent), upgrading systems (39 percent) and analyzing data fields (21 percent) when compared to 2017 levels. However, institutions’ total time and costs invested in HMDA implementation and staff training dropped from the prior year, from 41 to 33 percent, which was expected.

The survey was conducted nationwide between Aug. 22 and Sept. 12 and generated 582 responses.

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