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Substantial Risk, Compliance Concerns Remain for U.S. Lenders: Survey

Notable regulatory compliance and risk challenges remain high in a number of key areas for U.S. banks and credit unions, according to results of Wolters Kluwer’s 2019 Regulatory & Risk Management Indicator survey.

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 (HMDA) rules; cybersecurity, credit and compliance risks; and an increased level of regulatory agency fines.

The calculation of the Main Indicator Score is based on several factors, including:

  • The number of new federal regulations
  • The number of enforcement actions, and the total dollar amount of fines imposed on banks and credit unions over the past 12 months
  • Additional information provided by survey respondents

The survey was conducted nationwide between August 7 and September 3, 2019 and generated 704 responses. “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.”

Among top obstacles cited in implementing effective compliance programs, 47% of respondents ranked manual compliance processes as a seven or higher concern on a scale of 10, and 45% 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% in 2018 to 35% in 2019—and in reporting those expanded data to regulators, moving from 15% last year to 40% in 2019.

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 (CECL) accounting standards
  • Deposit account regulations
  • 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, cybersecurity continued to rank as the top risk with 78% of respondents anticipating escalated priority over the next 12 months, followed by compliance risk at 47% and credit risk at 45% of respondents ranking them as a seven or higher.

When asked about enhancing elements of their compliance management systems, 48% of respondents anticipate higher future investments in strengthening their risk assessment capabilities, followed by updating compliance policies and procedures (47%), and expanding compliance control testing processes (43%).

Looking forward, economic factors the institutions are monitoring as potential concerns include interest rate fluctuations (87%), data privacy issues (85%), and recession fears (76%). Only 22% of respondents view regulatory relief over the next two years as either very likely (3%) or somewhat likely (19%), a drop from 48% who viewed regulatory relief as very likely (15%) or somewhat likely (23%) in the 2018 survey.

Compliance Solutions, part of Wolters Kluwer’s Governance, Risk & Compliance division, is a market leader and trusted provider of risk management and regulatory compliance solutions and services to U.S. banks and credit unions, insurers and securities firms. The business helps these financial institutions efficiently manage compliance obligations tied to loan and deposit origination transactions and workflows, manage risk and other regulatory compliance obligations, and gain the insights needed to focus on better serving their customers and growing their business.

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