Although winter looms, predictions for the coming regulatory climate according to one consultant show escalating temperatures with little chance of relief.
“Right now the regulatory climate is hot and it’s been that way for a while,” said Pam Perdue, chief compliance strategist for Continuity Control, a New Haven, Conn., financial consulting firm.
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The regulatory storm is much broader than community financial institutions have faced in the past, Perdue said Wednesday during a Continuity Control webinar, “Enforcement Actions Survey: How to Avoid Being the Next Victim of Increased Regulatory Scrutiny.”
The lightning strike of enforcement actions is affecting a wider range of issues and institutions, including smaller asset-sized ones that may heretofore have operated successfully on a more informal basis. Those days, Perdue said, have passed.
“Regulators from all agencies are showing an increased appetite for enforcement,” said Perdue, a former regulator with the Federal Reserve. “It can happen to you and will only be prevented if you have a rock-solid compliance process already in place.”
Based on third-quarter 2013 data, the FDIC showed the greatest spike in activity among regulators, and especially in comparison to the NCUA, whose activity was limited by comparison. Overall, management issues attracted the largest amount of activity at 30%, but Bank Secrecy Act violations ranked a close second. The third quarter saw cease-and-desist orders issued against two credit unions for BSA violations, a move Perdue said was very unusual.
On Aug. 29, North Dade Community Development Federal Credit Union, located in Miami Gardens, Fla., signed a consent agreement with NCUA, neither admitting nor denying charges of alleged money laundering. The action prohibits the $6 million credit union for having any further business with money service bureaus not part of its field of membership.
On Sept. 24, Bagumbayan Credit Union in Chicago signed a similar consent agreement with the regulator, who found significant issues with the credit union’s management. Specifically, the action barred unpaid and untrained individuals from acting on behalf of the tiny credit union, which has $75,000 in assets and one employee.
Both cases focus on very small institutions, supporting Perdue’s assertion that size no longer matters, but adherence to formal compliance procedures does. What’s more, all regulators offer fair warning when something isn’t quite right with a financial institution’s compliance methodology.
“It is never a surprise when an institution gets into trouble and enforcement actions are never sudden,” said Perdue. “In more than 80% of all cases declining performance is known to an institution.”