20 The Community Banker mibonline.org GUEST ARTICLE Percentage Spent or Budgeted (%) 2020 (%) 2021 (%) <1 14.3 11.6 1-5 23.9 23.3 6-10 13.8 12.2 11-20 7.9 10.6 20-25 1.6 3.7 >25 5.9 5.8 The current financial industry is innovative, but as banking organizations have expanded their activities, they have also faced an increasingly complex regulatory environment. Plus, COVID-19 complications have exposed several high-profile compliance breakdowns. Federal and state regulatory agencies, legislators, and the general public are working to protect banking customers like never before. They are rigorously examining consumer and small business banking customer practices and regulatory compliance performance. Banking organizations understand that a heightened risk of compliance failure can result in litigation. Consequences may include damaged reputations, financial penalties, and regulatory constraints. Nobody wants that, but compliance has a price tag, and it isn’t cheap. Kroll Institute commissions an annual study conducted by Duff & Phelps, a financial consultancy firm. The most recent study is called Global Regulatory Outlook 2021. It includes analysis based on survey results from 250 senior executives in the U.S., United Kingdom, Europe, China, and India. All respondents work in a broad range of businesses that provide financial services. One fascinating graphic in the report was about compliance costs. A full 32.9% of the respondents did not know how much of their 2020 revenues went to regulatory compliance. Worse, 32.8% did not know how much they would be spending on regulatory compliance from 2021 revenues. The remaining companies had a better idea about compliance costs, but they spent or planned to spend widely varying amounts of money. For any company that spends more than a small percentage of its revenue on compliance, making sure compliance takes place is a big expense, but it is a core cost of doing business. You cannot be successful as a bank or financial services firm without implementing governance, risk, and effective regulatory compliance. The report contains additional information, but one important conclusion concerns the pandemic. The Great Recession still affects finances more than 10 years later, and the COVID-19 pandemic will have long-lasting consequences, too. Therefore, community banks should expect to see a continuation of problems related to the pandemic. The accompanying regulatory risks are Navigating Today’s Evolving Regulatory Landscape By Matt Ondus and Keith Gruebele, Bankers Healthcare Group
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