Burdened by Regulations – Welcome to the Club

Regulatory compliance and risk management concerns are on the rise at U.S. lending institutions, according to the 2019 Regulatory & Risk Management Indicator released Wednesday by Wolters Kluwer. The top areas of concern were HMDA rules, cybersecurity, and credit and compliance risk. 

Lenders reported their top compliance challenges for the next years are “managing and implementing residential mortgage regulations; keeping current with changing regulations; complying with the forthcoming Current Expected Credit Loss (CECL) accounting standards; deposit account regulations; and compliance program management.” 

When it comes to implementing compliance programs, lenders’ top concern was that their institution relies on manual rather than automated compliance processes. This concern was cited by 47% of respondents in the survey, up five percentage points from last year. At the same time, 46% of firms reported they anticipate “little to no investment” in compliance automation at their institution. 

The next two top concerns were inadequate staffing, cited by 45% of lenders, and “too many competing business priorities,” cited by 44% of respondents. 

Just 16% of survey respondents indicated that their institution has a “strategic, integrated” enterprise risk management system across all departments. About 30% said their institution lacks a widespread risk management system, and another 32% reported they were unsure whether their institution had one or not. 

Lenders harbor some major concerns with certain aspects of HMDA reporting but are increasingly comfortable with other aspects of HMDA.  Lenders reported declining concerns in regards to capturing data fields and upgrading systems over the past year. 

At the same time, they reported increasing concerns in regards to training staff, analyzing new data, and reporting in the expanded data submission process. The share of lenders who cited concerns with this last factor jumped from 15% last year to 40% this year. 

Cybersecurity remains a top concern at a majority of lending institutions and 78% of lenders reported it as a top risk that will receive “escalated priority” in the next year. While cybersecurity outranks all other risks in the survey, the level is down from 81% last year. 

Other top concerns that will receive additional attention over the next year are credit risk, up from 34% to 45% and regulatory/compliance risk, up from 33% to 47%. 

“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 at Wolters Kluwer’s Compliance Solutions business. 

The percentage of lenders expressing a high level of concern with compliance was down across the four main areas surveyed, including the ability to stay compliant amid changing regulations, the ability to keep track of regulatory changes, the ability to illustrate their compliance, and the ability to manage risk across the entire institution. However, despite declining concern in all these areas over the past two years, more than half of lenders maintain a high level of concern in these areas. 

The economic factors lenders are most concerned with moving forward are interest rate fluctuations, a concern for 87% of lenders; data privacy, a concern for 85% of lenders; and a pending recession, a concern for 76% of lenders. 

Lenders do not expect regulatory relief in the next two years. Just 22% of lenders believe regulatory relief is likely during that time, compared with 48% a year ago. 

The overall Main Indicator Score for the Wolters Kluwer’s regulatory and risk management survey was 95—up 10 points from last year. The score takes into account the lender survey, which included 704 respondents this year; as well as the number of new federal regulations for the industry, the number of regulatory enforcement actions, and the total dollar amount banks and credit unions incurred in fines over the year. 

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