Uptick in Banking Compliance Index Reflects Limited “Relief” for Banks, Credit Unions Continuity

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2200+ pages of new requirements elevate concerns on how to adapt

HAVEN, Conn. – July 15, 2019. Continuity’s Regulatory Operations Center® has released the second quarter 2019 Banking Compliance Index™ (BCI), revealing a 25% quarter-over-quarter increase in the level of effort required by financial institutions to keep up with regulatory change. A retrospective analysis of the data points collected over a fifteen year period indicates that the regulatory environment is stabilizing at levels comparable to 2008, before the financial crisis and ensuing Dodd-Frank Act regulations. However, this stabilization has happened at regulatory volumes that remain difficult to manage and costly to bear. Looking backward, Q2 2008 brought 2015 pages of new regulation and 46 enforcement actions. In Q2 2019, there were 2241 pages of new items, and 72 enforcement actions. This normalization back to pre-crisis levels of regulatory page counts was not accompanied by a similar reduction in enforcement. In fact, the recent trend of enforcement against individual officers and directors versus their institutions continued during the quarter. Roughly a quarter of the enforcement actions during the quarter were directed at institution-affiliated individuals in cases where the institution itself was not also included in the enforcement.

“It has been interesting to observe the shifts away from consumer protection and toward areas like sanctions, safety-and-soundness, and technical alignment of rules,” reports Donna Cameron, Continuity’s director of regulatory I/O. “Relief has been elusive for most banks and credit unions due to the many operational considerations associated with ongoing relaxation of challenging and complicated rules.”

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. There tends to be an increase in activity between the first and second quarters of a calendar year: this 25% rise, while significant, is less alarming than the near 50% quarter-over-quarter increase from the same period in 2018. Compliance costs remained level compared to 2018, hovering at around $20,000 a quarter for a $400M institution, but were significantly higher than the $13,000 figure from 2017.

“The trends we are seeing in the economy at large and the financial services industry in particular, combined with what this data about regulatory activity reveals, indicate that financial institutions and fintech firms must not only remain aware of regulation, and actively ensuring they are implementing correctly while simultaneously staying compliant with already-existing rules,” stated Pam Perdue, Continuity’s chief regulatory officer.

An interesting development in Q2 was the uptick in OFAC activity. Two existing sanctions regulations (Cuba and North Korea) were amended, and a new one was issued related to potential foreign interference in U.S. elections. In addition, OFAC expanded the amount of information that must be provided in reports submitted to the agency when property is blocked, unblocked, or released and when transactions are rejected. Lastly, OFAC provided a framework to assist institutions in implementing an OFAC compliance program. While not mandating that such a program be implemented, OFAC stated that financial institutions were “strongly encouraged” to do so, and that these programs will be reviewed when violations are identified and potential penalties are being considered. Whether this increased OFAC activity is a trend that will continue remains to be seen, but it is certainly a reminder of the importance of having robust risk management controls in place, including ensuring that systems used to identify potential OFAC matches are kept up to date so that transactions are being scanned against the most current lists.
Cameron added, “While there may have been fewer “big ticket” items this quarter than we’ve seen in some previous quarters, the volume and variety of issuances, as well as the significant number of new proposals, indicates that activity is likely to remain high for the foreseeable future. This is no time to relax our focus or vigilance toward compliant performance.”

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.

About Continuity
New Haven, Connecticut-based Continuity is a provider of regulatory technology (RegTech) solutions that automate compliance management for financial institutions of all sizes. By combining regulatory expertise and cloud technology, Continuity provides a proven way to reduce regulatory burden and mitigate compliance risk at a fraction of the cost. Continuity’s solutions are designed to automate all aspects of compliance management, from interpretation of regulatory issuances through intuitive task delegation, vendor management, and board reporting. Continuity serves hundreds of institutions across the United States and its territories. For more information about Continuity, visit www.Continuity.net.