Wolters Kluwer: ‘Substantial Risk, Compliance Concerns’ Remain for U.S. Lenders

Wolters Kluwer, Minneapolis, issued its 2019 Regulatory & Risk Management Indicator, which noted despite a 10-point improvement from 2018, “notable” regulatory compliance and risk challenges remain high in a number of key areas for U.S. banks and credit unions.

This year’s survey generated a Main Indicator Score of 95, a 10-point increase from the 2018 score, that was influenced by concerns about the impact of Home Mortgage Disclosure Act rules; cybersecurity, credit and compliance risks; and an increased level of regulatory agency fines.

“Respondents indicated more confidence in their ability to maintain compliance, keep track of changing regulations and demonstrate compliance to regulators, reaching the highest confidence levels in the survey’s seven years,” said Timothy R. Burniston, Senior Advisor for Regulatory Strategy with Wolters Kluwer’s Compliance Solutions business. “These findings suggest a strengthening of lenders’ compliance program management practices. That said, relatively high levels of concern across a range of areas remain, reinforcing the reality that regulatory compliance and risk management issues continue to significantly challenge financial institutions.”

The survey said among top obstacles cited in implementing effective compliance programs, 47 percent of respondents ranked manual compliance processes as a seven or higher concern on a scale of 10, while 45 percent cited inadequate staffing, both slight increases over 2018 levels. Concerns about managing increased HMDA analysis and reporting obligations jumped significantly among reporters, particularly in their ability to analyze newly collected HMDA data, moving from 21 percent in 2018 to 35 percent in 2019, and in reporting those expanded data to regulators, moving from 15 percent last year to 40 percent in 2019.

The survey noted over the next 12 months, respondents’ most pressing regulatory compliance challenges include managing and implementing residential mortgage regulations; keeping current with changing regulations; complying with the forthcoming Current Expected Credit Loss accounting standards; deposit account regulations; and compliance program management. Respondents also expressed a high level of concern about their ability to comply with BSA/AML requirements, fair lending laws and regulations, UDAAP standards, new URLA forms and, to a slightly lesser degree, state regulatory requirements.

From a risk management perspective, the survey said cybersecurity continued to rank as the top risk, with 78 percent of respondents anticipating escalated priority over the next 12 months, followed by compliance risk at 47 percent and credit risk at 45 percent of respondents ranking them as a seven or higher. When asked about enhancing elements of their compliance management systems, 48 percent of respondents anticipate higher future investments in strengthening their risk assessment capabilities, followed by updating compliance policies and procedures (47 percent), and expanding compliance control testing processes (43 percent).

Looking forward, economic factors the institutions are monitoring as potential concerns include interest rate fluctuations (87 percent), data privacy issues (85 percent), and recession fears (76 percent). Only 22 percent of respondents view regulatory relief over the next two years as either very likely (three percent) or somewhat likely (19 percent), a drop from 48 percent who viewed regulatory relief as very likely (15 percent) or somewhat likely (23 percent) in the 2018 survey.

Wolters Kluwer calculated the Main Indicator Score is based on several factors, including the number of new federal regulations, number of enforcement actions and total dollar amount of fines imposed on banks and credit unions over the past 12 months, together with additional information provided by survey respondents. The survey took place nationwide between August 7 and September 3 and generated 704 responses.