If your credit union's compliance officer still acts as little more than a watchdog, barking directives about what you can and can't do, he or she may be taking unintended bites out of your future member service capabilities and competitive positioning.
In an environment characterized by a plethora of new laws and burgeoning enforcement actions, compliance officers today must operate as business catalysts, helping their credit unions grow within the rigors of a rapidly changing regulatory landscape, according to Andy Greenawalt, founder and CEO of Continuity Control, a New Haven, Conn.-based financial technology company.
“Compliance officers must look at things with a critical eye and have a mindset of possibilities,” said Greenawalt during his Dec. 12 webinar titled, “Compliance Officer 2.0 - Are You Ready?” “Changing your thinking is absolutely imperative to the survival of your institution and your industry.”
The evolution of compliance officers’ roles from that of thinker and researcher to one of enabler and leader represents a sea change in the role that compliance officers must play in the emerging regulatory environment, Greenawalt said. Much of that change is dictated by the attitude of the regulators themselves, who have stepped up enforcement actions that meet and exceed the growing influence of regulation.
“Examiners are getting tired of ill-framed and poorly organized reporting,” Greenawalt told webinar participants. “They want articulation, and the lack of it is what agitates the beast, what pokes the tiger.”
New regulations continue to percolate at a steady pace but the number of enforcement actions among financial institutions, including credit unions, have spiked in the past 10 years, now averaging between 150 and 200 actions per quarter compared to around 25 a decade ago, said Greenawalt. In the last year, the incremental compliance cost-per-quarter has risen to $43,493 per institution in the third quarter of 2013, up from $26,040 in the third quarter of 2012, according to combined financial regulator data.
“Compliance needs have exploded, the technology has changed and the pressure is absolutely here,” Greenawalt said.
The growing compliance requirements also have become costlier for smaller institutions, some of which lack the resources to address demand, according to Greenawalt. While big banks seem better able to roll with the punches, smaller institutions struggle under the increasing regulatory weight. Greater integration of the compliance function into the daily operating environment is critical to making the most from limited resources, he added.
“Today, compliance officers have to look at their jobs very differently,” said Greenawalt. “Compliance officer 2.0 is the integral role in the business of banking, and the business of banking isn't possible without it.”
Read more: Taking a holistic approach ...
In years past, compliance officers have seen their roles as the credit union's safety net, mid-level managers who specialized in taking methodical, often slow steps in examining conditions with an eye toward keeping the institutions out of harm's way, according to Greenawalt.
Under a 2.0 scenario, compliance officers should view their role as more holistic, Greenawalt said, including identifying processes to make the credit union more competitive while still complying with changing regulations. Compliance must become an organization-wide responsibility under an officer now considered a part senior management, he added.
“This requires an attitude of optimism,” Greenawalt said. “It's no longer a matter of saying, ‘We can't do this,’ but rather, ‘How are we going to do this?’”
Rather than reviewing compliance needs merely as a set of tasks, they must be seen with the context of the credit union's business objectives, said Greenawalt. What had previously been considered roadblocks to progress should be seen merely as speed bumps to overcome so that high levels of member service can prevail despite what might be perceived as regulatory limitations, he suggested. That requires a change of focus, the consultant said, as well as an emphasis on developing compliance management systems.
“The current challenges are systemic,” Greenawalt said. “The changes keep coming and credit unions need to have a system in place designed to deal with those changes.”
According to the FDIC, a compliance management system is designed by a financial institution to assess its consumer protection, fair lending and Community Reinvestment Act responsibilities, ensure that employees understand these responsibilities and requirements are incorporated into business processes. The system should also review operations to ensure that responsibilities are carried out and requirements met and take prompt corrective action and update materials, disclosures and training as necessary
“Historically, the compliance job was research-oriented and introspective,” said Greenawalt. “In 2.0, compliance officers are out in the field to better figure out how to integrate regulations into daily operations.”
The change in emphasis also has changed the amount of time spent on the position's various key responsibilities. Previously, compliance officers had spent more than 60% of their time on analysis and 15% on implementation, Greenawalt said. Under 2.0, the emphasis has changed, with compliance officers now spending just 20% of their time on analysis and more than 60% on implementation.
Today and in the years to come, Greenawalt said credit union compliance officers will need to be thought leaders and implementers within their institutions with executive thinking and communication skills augmenting detailed analysis capabilities.
The end result, Greenawalt said, is to keep the credit union safe while using the regulatory challenges it faces to build a better, more service-oriented and more profitable institution.
Read more about how credit unions are coping with new regulatory burdens in 2014: