MINNEAPOLIS—U.S. banks and credit unions are feeling more confident in their ability to meet compliance demands, but there remains a core number of common compliance and risk challenges facing financial institutions, according to a new study.
Wolters Kluwer said its 2019 Regulatory & Risk Management Indicator survey generated a Main Indicator Score of 95, a 10-point increase from the 2018 score, that was influenced by concerns about the impact of Home Mortgage Disclosure Act (HMDA) rules; cybersecurity, credit and compliance risks; and an increased level of regulatory agency fines, Digital Journal reported.
The calculation of the Main Indicator Score is based on several factors, including the number of new federal regulations, number of enforcement actions, and the total dollar amount of fines imposed on banks and credit unions over the past 12 months, together with additional information provided by survey respondents. The survey was conducted nationwide between August 7 and September 3, 2019 and generated 704 responses.
Highest Confidence in 7 Years
“Respondents indicated more confidence in their ability to maintain compliance, keep track of changing regulations, and demonstrate compliance to regulators, reaching the highest confidence levels in the survey’s seven years,” said Timothy R. Burniston, senior advisor for regulatory strategy with Wolters Kluwer’s Compliance Solutions business. “These findings suggest a strengthening of lenders’ compliance program management practices. That said, relatively high levels of concern across a range of areas remain, reinforcing the reality that regulatory compliance and risk management issues continue to significantly challenge financial institutions.”
Among the Findings:
Compliance
- Among top obstacles cited in implementing effective compliance programs, 47% of respondents ranked manual compliance processes as a seven or higher concern on a scale of 10, and 45% cited inadequate staffing, both slight increases over 2018 levels.
- Concerns about managing increased HMDA analysis and reporting obligations jumped significantly among reporters, particularly in their ability to analyze newly collected HMDA data—moving from 21% in 2018 to 35% in 2019—and in reporting those expanded data to regulators, moving from 15% last year to 40% in 2019, Digital Journal stated in its analysis.
The Year Ahead
- Over the next 12 months, respondents’ most pressing regulatory compliance challenges include: managing and implementing residential mortgage regulations; keeping current with changing regulations; complying with the forthcoming Current Expected Credit Loss (CECL) accounting standards; deposit account regulations; and compliance program management.
- Respondents also expressed a high level of concern about their ability to comply with BSA/AML requirements, fair lending laws and regulations, UDAAP standards, new URLA forms and, to a slightly lesser degree, state regulatory requirements.
Risk Management
- From a risk management perspective, cybersecurity continued to rank as the top risk with 78% of respondents anticipating escalated priority over the next 12 months, followed by compliance risk at 47% and credit risk at 45% of respondents ranking them as a seven or higher.
- When asked about enhancing elements of their compliance management systems, 48% of respondents anticipate higher future investments in strengthening their risk assessment capabilities, followed by updating compliance policies and procedures (47%), and expanding compliance control testing processes (43%), Digital Journal said.
Looking Forward
- Looking forward, economic factors the institutions are monitoring as potential concerns include interest rate fluctuations (87%), data privacy issues (85%), and recession fears (76%).
- Only 22% of respondents view regulatory relief over the next two years as either very likely (3%) or somewhat likely (19%), a drop from 48% who viewed regulatory relief as very likely (15%) or somewhat likely (23%) in the 2018 survey.