STAMFORD, Conn.—While credit unions continue to stress they did nothing to contribute to the financial crisis, one company is advising CUs to be prepared to be regulated as heavily as banks.
“As we look to the second half of 2016, the idea that credit unions will face comparable regulatory scrutiny to banks is coming to fruition. We have heard it for almost a decade—credit unions need to focus their attention on how they manage to a regulatory agency’s expectations,” said Vanessa Stanfield, client program director, vendor management with Affinion Insurance Solutions. “Although some will say that credit unions are reaping negative attention as a result of experiences consumers have encountered with banks, it is safe to say that this scrutiny is the ‘new normal’ in the credit union market.”
Stanfield cited industry statistics that outline just how much additional regulatory scrutiny is being applied to FIs, and what the ensuing cost is. As an example, Stanfield cited the Banking Compliance Index (BCI) that is published by Continuity.
“The Banking Compliance Index (BCI) has long measured the incremental regulatory cost and burden on banks and credit unions. According to the Q1 BCI, the average financial institution will require an additional 1.22 full-time equivalents to research and address just Q1’s new regulatory changes,” she pointed out.
Staggering Cost
The cost to the average financial institution, noted Stanfield, is a “staggering” $29,021 per quarter, or approximately $179 million for the entire financial services industry.
“The BCI reported that in Q1 alone there were 173 enforcement actions,” she said. “Many of these enforcement actions were attributed to financial institutions that did not have adequate oversight of their third-party relationships.”
What does this mean for credit unions? asked Stanfield. In some cases it may mean credit unions need to re-evaluate whether they have an appropriate vendor management framework in place, she said.
“Credit unions are facing more and more regulations and their challenge is how to bring valuable products to market for their members while meeting the regulatory burden,” Stanfield said. “Ultimately being buttoned up on how vendors are managed is mandatory in order for credit unions to survive an auditor’s keen eye.”
Vanessa Stanfield
Stanfield reminded that just as CUs must continually tighten up the processes they use to manage third-party providers, all current and prospective vendors need to maintain high-quality documentation in order to meet a credit union partner’s needs.
“In 2014 Affinion Insurance Solutions began building out a client due-diligence program to help credit union partners stay on top of compliance requests, potentially reducing the financial burden they are facing,” Stanfield explained. “We continue to see an increase in the number of client due diligence requests. During the first four months of this year we have seen a 100% increase over the number of requests fulfilled for our partners during the first half of 2015.”
Trends Growing
Compliance trends growing among its CU partners, according to Stanfield, are privacy/information security questions and requests, and subcontractor due diligence requests around Affinion vendors.
“Affinion Insurance Solutions has invested heavily in ensuring that credit unions have their needs met when it comes to vendor due diligence,” said Stanfield. “We have hired additional client due-diligence vendor management talent, created a proprietary Affinion due diligence package aligned to regulatory requirements, delivered supporting materials for client regulatory inquiries, and emphasized how our products, processes and services are compliant across national and state regulatory agencies.”
Stanfield emphasized that in 2014 Affinion recognized that regulatory scrutiny wasn’t going to go away.
“We took a thoughtful approach to forecast what investment in our resources we would need in order to be positioned to meet our credit unions’ due diligence needs,” she said. “Our early planning around client due diligence means that we are well prepared to help our credit union partners navigate a challenging regulatory environment.”