NEW HAVEN, Conn.–After a brief respite that led some to believe the regulatory burden may ease a bit, the weight of compliance on credit unions grew heavier again during the third quarter of 2017 as compared to Q2.
Continuity’s third quarter Banking Compliance Index (BCI) “indicates a return to business as usual” after a brief period of low regulatory activity in the first half of 2017, likely related to the uncertainties of a new administration following a typical election-year cycle, the company said.
“The increase in regulatory burden from Q2 persisted and escalated during Q3,” said Continuity. “While regulatory changes held steady (with a minor drop of two fewer issuances in Q3 than Q2), regulatory page counts nearly doubled, to 2,692 pages, and enforcement actions issued were on par with levels seen in Q3 2016. Given that the fourth quarter of the calendar year is typically the busiest as far as new regulation is concerned, any hopes for an easing of regulatory burden under a Trump administration seem to have been short-lived.”
This quarter’s BCI rose to 1.27 - with a 63% increase in the number of hours required to analyze and implement new regulations over the prior quarter. The cost of compliance activities across the typical $350 million financial institution grew more than 60%, rising to $22,225 compared to $13,925 in the quarter before, Continuity said.
“The BCI indicates these changes were accompanied by an uptick in enforcement actions as well, as 97 actions were taken by regulators during the quarter,” according to Continuity. “This accelerated the enforcement rate one full point over the first quarter figure, to 6.7%. This rise in enforcement actions matches the Q3 2016 level.”
“First quarter slowdown is a pattern commonly seen after most presidential elections,” said Pam Perdue, EVP and chief regulatory officer of Continuity. “Three-fourths of the way through the year, we are now seeing a higher rate of enforcement actions, in addition to many new regulations – all signs that the industry is back to business as usual. While reg reform is gaining traction, the legislative process takes time, and in the meanwhile, bankers still have to comply with what’s already in place.”
Contributing to the increased burden in Q3 were additional HMDA amendments (and related changes to CRA and ECOA), final TRID amendments, and issuance of the CFPB’s arbitration agreements rule, Continuity said. Together, these rules total almost 1,700 pages. Added to that were 13 new proposals and the announcements of “more to come,” including proposals on capital simplification and another amendment to the mortgage servicing rules. Comment periods have closed on proposed changes to the TRID rule, appraisal thresholds, and the NCUA’s emergency mergers and NCUSIF distribution rules, meaning that final rules can be anticipated.
Continuity added that on top of the 1,700 pages of new rules to read, analyze and implement, financial institutions continue to be hard at work preparing for the HMDA amendments effective in January, the arbitration agreements rule in March, prepaid accounts and phase 2 of the mortgage servicing amendments in April, and the new CDD/beneficial ownership rule in May.
“As is historically the case, Q4 has started with a bang, with 13 new issuances in the first 10 business days of October, including the final payday lending rule (at almost 1,700 pages),” the analysis noted.
“We can expect to see a fairly sustained level of regulatory activity now that the industry has adjusted to the new administration,” said Continuity Director of Regulatory I/O Donna Cameron. “With many new regulations expected in Q4 and a return to 2015 levels in Q3, the industry must begin taking proactive measures to ensure a robust compliance management system is in place, instead of taking a reactive, labor-intensive approach to the growing volume of new regulations.”