Enforcement doubled from prior quarter; change management up 41%
NEW HAVEN, Conn. – October 21, 2019. Continuity’s Regulatory Operations Center® (ROC) has released the third quarter 2019 Banking Compliance Index™ (BCI), revealing a 41% increase in the overall level of effort required by financial institutions to keep up with regulatory change. Hours consumed in change efforts jumped 46% from the second quarter. When comparing this year to Q3 2018, effort is up 28%, and hours consumed by regulatory change management and implementations are a whopping 85% higher than this time last year.
In line with prior predictions, enforcement against individual officers and directors of financial institutions has once again surpassed the number of institution-focused actions. 108 enforcement actions during the quarter were directed at institution-affiliated individuals, in cases where the institution itself was not also included in the enforcement. Compared to the 39 actions against organizations, the level of scrutiny around individual behavior is pronounced. This 104% increase from the second quarter of the year, which also caused the rate of enforcement to more than double, from 5.37% to 11.09%, is sounding alarm bells in the ROC.
“Any time a significant increase across all the data points is observed, it’s a sign of broader shifts in the industry. When one data point spikes, it may be an anomaly, or it may be explained by one or a few root causes. But when all of them do, it’s a sign of turbulence that usually foretells more significant disruption,” stated Pam Perdue, Continuity’s Chief Regulatory Officer.
The Banking Compliance Index, published quarterly by Continuity’s Regulatory Operations Center® (ROC) quantifies the incremental burden on financial institutions in keeping up with regulatory changes. So far in 2019, U.S. banks and credit unions have spent an estimated half-billion dollars just to manage regulatory change. Also noteworthy, this figure does not include the dollars spent to assure compliance with existing regulations.
“There continues to be an increased focus on sanctions and safety-and-soundness issues, with less activity in the area of consumer protection,” reports Donna Cameron, Continuity’s director of regulatory I/O. “We are also seeing an uptick in fraud-related guidance, covering areas ranging from elder financial exploitation to business email compromise.”
As is historically the case, the fourth quarter promises to be busy. The NCUA’s second payday alternative loan rule is effective in December, and both the NCUA and the banking agencies announced increases in appraisal thresholds taking effect in October. In addition, the comment periods are closing on several important proposals, including changes to debt collection practices and HMDA data collection and thresholds. Looking out a little further, increases in Regulation CC’s funds availability amounts will be effective in July, and financial institutions are already gearing up to revise disclosures, reconfigure systems, train staff, and send out change-in-terms notices.
Cameron added, “It’s clear that the pace of change is accelerating. The continued emphasis on safety-and-soundness and governance rules means that responsibility for implementing change has expanded beyond the compliance officer to encompass the entire institution. The only way to keep up is to have solid, consistent change management processes in place.”
“We are on high alert at Continuity, because the fourth quarter of the year is historically the most active. When combined with broader economic, political and technology trends, we may see even greater volatility in the regulatory compliance landscape than the normally elevated Q4 levels,” stated Perdue. “Everyone in the marketplace - whether you’re a bank, credit union, mortgage company or fintech - should remain vigilant toward these shifts, and arm their personnel with the information and tools needed to navigate these uncertain times.”
About the Banking Compliance Index™
The Banking Compliance Index™ (BCI) is a quarterly tracking index published by Continuity’s Regulatory Operations Center®. It measures the incremental cost burden on financial institutions to keep up with regulatory changes.
The BCI is calculated each quarter using a multivariate analysis that can be weighted across different contexts and is calibrated to determine the regulatory impact on financial institutions of varying sizes, product mixes and regulatory oversight. Key indicators include volume, velocity and complexity of regulatory change; time expended to meet regulatory requirement(s); and supervision and the enforcement climate. The BCI data sources include CFPB, FDIC, FED, NCUA and OCC. The BCI is calculated using the statistically average size of a domestic financial institution, currently $425 million according to publicly reported data available from the Federal Deposit Insurance Corporation.
New Haven, Connecticut-based Continuity is a provider of regulatory technology (RegTech) solutions that automate compliance and risk management for banks, credit unions, mortgage companies and fintech firms. By combining regulatory expertise and cloud technology, Continuity provides a proven way to reduce regulatory burden and mitigate risk at a fraction of the cost. Continuity serves hundreds of institutions across the United States and its territories. Continuity’s CMS product set includes RegAdvisor® Pro, RegAdvisor® State, RegControls™, ControlsBuilder™, Policy and Procedure Management and Vendor Management solutions tailored to meet the needs of banks, credit unions, mortgage companies and financial technology firms. Continuity in September 2019 completed the acquisition of TraceRisk, an enterprise risk management solution. More information on this acquisition can be found here.