Reg relief will trigger more, not less, activity inside banks and credit unions
NEW HAVEN, CT (May 1, 2018) — The Banking Compliance IndexTM (BCI), revealed historically low regulatory activity in Q1 2018. While discussions around regulatory reform continued in Congress, little concrete action was taken last quarter, causing uncertainty about the regulatory environment for many financial institutions. While bankers hold their breath about when and whether regulatory reforms will be finalized, they also speculate that with any reforms will come more, not less, work for their teams.
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. While the first quarter of each calendar year is always the slowest in terms of the pace of regulatory activity, last quarter’s BCI dropped 15% from the same quarter of 2017, and reflected a sharp drop of 61% from the fourth quarter of 2017. In Q1 2018, the typical community financial institution needed just over one half-time employee (0.67) to keep pace with regulatory changes.“This regulatory pause is likely just an intermission; Congress continues to buzz with talk of reducing regulatory burden, pointing to the potential for substantial change in the coming months,” reports Donna Cameron, Continuity’s director of regulatory I/O. “Institutions should avoid claiming victory prematurely, as there will be much work to do if rules are modified.”
The 50 issuances between January 1 and March 31, 2018 were on par with previous first quarter volumes. But, according to Cameron, they were less complex: only 1,234 pages of new regulation.Compliance costs also held steady, at $10,766 for the statistically average-sized financial institution. “It is not unusual to see a regulatory slowdown in the first quarter because fourth quarters are typically full of activity to close out the year end with housekeeping issues and technical updates. This trend held true for Q1 2018,” Cameron verified. “While the number of issuances remained steady, they were generally less complex than we’ve seen in previous quarters.”
An adjustment to the Prepaid Accounts Rule was a significant change during Q1 2018. While the rule was supposed to take effect this month, the effective date has been pushed back another year to April 1, 2019. Another noteworthy change was an update to the status of the Payday Lending Rule. In January, the Consumer Financial Protection Bureau (CFPB) announced that it planned to open a rulemaking process to reconsider the Payday rule. This will be an important process for financial institutions to watch.
Cameron added, “The current CFPB posture suggests that several of its previous enforcements might be repealed or amended; in fact, there have been no enforcement actions issued by the Bureau since director Mulvaney assumed his position. However, it’s critical for financial institutions to realize that even if regulations are rolled back and burden is reduced, that still represents a significant change that requires a shift in procedures, training and software. Financial institutions must remain proactive in their regulatory monitoring and management to prepare for the changes ahead.”
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.