RIVERWOODS, Ill.–A survey that seeks to gauge perceptions of regulatory and risk trends has found a 21-point increase over the same survey conducted one year earlier, as financial institution leaders express anxiety over disruptions caused by the ongoing pandemic as well as growing compliance and reputational risks.
The findings were released as part of Wolters Kluwer’s 2021 Regulatory & Risk Management Indicator survey, an annual initiative that seeks to identify regulatory and risk trends in the U.S. banking industry. The survey, which has been conducted for nine years, includes credit unions, which represent one in five of the respondents participating in this year’s survey. Seventy-two percent of respondents are from lending institutions with assets of less than $1 billion, and 38% of respondents hail from institutions with less than $500 million in assets, according to Wolters Kluwer.
“This year’s survey generated a Main Indicator Score of 128, a 25-point increase over the 2020 score,” Wolters Kluwer reported. “It’s also the third consecutive year that the Main Indicator Score has increased, up 43 points in total since the 2018 Indicator survey. “
The Main Indicator Score is calculated based on several factors, as shown below:
Top Challenges in 2021
According to Wolters Kluwer, keeping one’s credit union and its members safe from harm remains a top priority, in addition to pre-pandemic known cybersecurity risks, COVID-19 added another level of challenges. The threat of ransomware attacks led the list of risk factors in credit unions’ enterprise risk planning, the company reported.
Sixty-three percent of respondents gave it “significant consideration,” and another 22% marked it for “some consideration” in their planning.
Wolters Kluwer said this year’s survey included a new question about investing in digital transformation efforts, with 63% saying they anticipate “significant” or “some” acceleration of their digital lending processes. Forty-seven percent of the respondents indicated they had made some progress with digitizing their lending capabilities, while 24% indicated they have made significant progress or are fully digitized, Wolters Kluwer said.
“However, despite these advancements toward automation, there’s still a heavy reliance on manual processes,” the company stated. “Eighty-seven percent of respondents are still using manual processes or spreadsheets at least some of the time for their compliance management efforts.”
Looking Forward
Wolters Kluwer reported that its analysis shows over the next 12 months, nearly every banking segment lists “keeping up with regulatory change” as its most pressing compliance challenge. Current Expected Credit Loss (CECL) standards are also a prominent concern for credit unions as they gear up for mandatory compliance for fiscal years beginning after Dec. 15, 2022, it added.
When asked about the likelihood of reduced regulatory burden over the next two years, respondents revealed greater pessimism, with 72% citing the likelihood of regulatory relief as either “somewhat unlikely” or “very unlikely,” compared to 56% in 2020, Wolters Kluwer said.