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There have been numerous articles published in the media on the topic of U.S. credit unions moving to next-generation core banking platforms. While the articles provide great information and justification for moving to a next-generation core banking platform – such as the ability to be more strategic through innovation, a quicker time to market with new offerings, and better reporting and analytics – a key factor that is missing from the evaluations is regulatory compliance.
Regulatory compliance is by far one of the top expenses for a financial institution. Compliance requires the investment of not only dollars but key talent, and both are many times diverted from strategic projects. Failure to comply can lead to not only significant fines and penalties, but even bigger losses as a result of reputational risk. The window to reach compliance following a regulatory change is oftentimes very small, as governing agencies do not understand how long it can take to implement a new regulatory requirement on old technology. This is one of the many reasons regulators are pushing for financial institutions to move to new technologies.
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Another concern that creates compliance risk from a regulator's perspective is the aging workforce. Finding new talent that can support Common Business Oriented Language (COBOL) and other older programming languages is a real risk. Associated with this same risk is the fact that many financial institutions are running on platforms that are no longer supported by the technology provider and have taken their support in-house. With unsupported technology and an aging workforce, financial institutions are unable to quickly respond to change, and technical limitations lead to a lack of automated solution capabilities, resulting in the institution implementing a partial or whole manual solution. And human intervention always carries a compliance risk component.
Finally getting data out of legacy systems is becoming an even bigger concern for regulators. With older technology, custom reports and extracts must be written in a manner that allows the information to be pulled into a database where it can be analyzed. While this may not sound concerning, the fact is it takes several weeks to perform this step once the project can be prioritized. This leads to delays in providing information for exams, audits and performing analysis designed to determine potential consumer compliance violations.
When moving to a next-generation core banking platform, discussions should involve how to move to a solution that provides the credit union with next-generation compliance support. Here are two very important questions to ask during these discussions:
- How can my investment in technology provide me the ability to innovate my offerings while at the same time reducing my overhead costs to comply with Federal laws and regulations?
- How can my new technology help me reach compliance faster so I can focus my resources on revenue opportunities?
Factoring in these questions will greatly increase the justification for a move, and ease regulatory burdens and regulator concerns. The results will also be visible when looking at the institution's bottom line after the move is complete.
By choosing the right technology service provider that offers a next-generation core banking platform with a pre-configured and highly extensible compliance framework, credit unions can ensure that they are not compromising on regulatory compliance during this journey. Next-gen, cloud-native, API-first, payment processing and core processing platforms enable financial institutions and issuers to be 100% compliant with every existing U.S. regulatory statute today. Moreover, leveraging never-seen-before innovations in the processing industry gives financial institutions the flexibility and extensibility to comply with practically any future regulatory requirement in a matter of days.
Karla Booe is Chief Compliance Officer for Zeta, a San Francisco-based banking technology provider.
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