24 Hoosier Banker August 2014 PSP SHOWCASE It’s no secret that community banks are facing the hottest regulatory climate in history. At a time of razorthin margins, we’re seeing record highs in the amount of resources banks must devote to handle new regulations and an added focus from regulators on enforcement. The cost burden for the average community bank to handle just the regulatory changes from the first half of 2014 was over $72,000, according to the Banking Compliance Index (BCI), which measures the regulatory burden on financial institutions. The average institution also needed to devote an extra 1,000 hours – equivalent to one and a half full-time employees – to keeping up with more than 6,000 pages of regulatory changes in the first half of the year. Staffing costs are partly responsible for the continued increase in compliance spending, as in-demand compliance specialists command higher paychecks. Along with the increase in new regulations, the BCI has shown a consistent increase in enforcement actions taken on community banks. If the current enforcement rate holds, over the next years, 10 percent of all financial institutions will be dealing with the effects of enforcement actions. Though it is not likely that this regulatory storm will let up anytime soon, the good news is that there are changes community bankers can make to ensure their institutions survive. Standardize policies and procedures. Today the typical bank’s current compliance process consists of policies documented across various applications and procedures that are often inconsistent. Without a standardized process for dealing with regulations, tasks can easily become an overwhelming nightmare. Federal agencies consistently advise institutions to follow these five steps in developing a standardized compliance program: 1. Construct a risk assessment to determine the bank’s exposure; 2. Issue a written policy around the ruling or change; 3. Define the procedures needed to ensure compliance; 4. Do periodic monitoring to track staff performance; 5. Conduct an audit of the compliance activities. Having a strong foundation based on these standards also should put an end to the mayhem that constant regulatory changes create for compliance officers. Automate processes. While managing the regulatory burden is not an impossibility, trying to do it manually is. There have been 272 regulatory changes issued within the past 12 months, totaling more than 15,000 pages. At this rate, there simply is no way to ensure that nothing is falling through the cracks without automation. Once there is a standardized methodology for handling regulatory requirements, an institution can leverage automation tools to dramatically reduce the time and effort needed to manage the compliance program, and each of its rapidly changing components. Automating the administrative work of compliance and moving from documents to data can refocus energy on more critical issues, such as risk management and revenue-generating activities. How to Survive the Most Oppressive Regulatory Storm About the Author Andy Greenawalt is the co-founder and chief executive officer of Continuity Control, New Haven, Connecticut. The company provides compliance management services to enable community financial institutions to control the costs of compliance while passing regulatory muster. Greenawalt has been dubbed a “technology guru” for his innovative thinking and ability to simplify complex processes. The author can be reached at 866-631-5556, email: andy@continuity.net. Continuity Control is a Preferred Service Provider of the Indiana Bankers Association. Continued on facing page.
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