Community Reinvestment Act revamp is just one imminent stress inducer
Keeping up with the breadth of regulatory changes tops the list of key concerns facing US lenders, according to the results of Wolters Kluwer’s latest Regulatory & Risk Management Indicator survey.
The finding marks the second consecutive year in which respondents from banks, credit unions and other lenders categorized their ability to manage compliance as the chief challenge. Timothy R. Burniston (pictured), senior advisor for regulatory strategy with Wolters Kluwer Compliance Solutions, said concern over regulatory compliance has grown over the last two years or so.
“I think in the last couple of years we’ve seen a lot more of our respondents identifying the ability to manage regulatory change as a top priority, and that’s probably a function of the fact that over the last couple of years we’ve seen more regulation policy statements, guidance coming from the regulatory community,” he told Mortgage Professional America during a telephone interview. “Being able to get your arms around that and being able to implement it across an organization presets a lot of challenges.”
Still, the result raised eyebrows at Wolters Kluwer: “I’d say that this year surprised us a little bit that it came out on top,” Burniston said. “When you look at what folks were most concerned about over the next 12 months, it doesn’t really matter what size organization it was or what type of organization it was. The ability to manage regulatory change was identified as the most pressing compliance challenge,” he said of the 328 respondents.
Read more: OCC wants your thoughts on Community Reinvestment Act implementation
“We have so many things on the horizon right now that have been in play for the last couple of years that the industry is expecting to see soon,” Burniston said. “For banks, imminent revamping of the Community Reinvestment Act is one of those emerging stress inducers,” Burniston said. “It would affect banks of all sizes, in terms of a new evaluation method, new things to learn, new data to collect, a new examination process, looking at new ways to work with their communities and other partners.”
Burniston noted the CRA revamp has been long in the making: “The regulators have been working on this for quite some time,” he said. “We had a period when the OCC [Office of the Comptroller of the Currency] had moved out on its own. That, of course, would just affect national banks. But now we’re waiting on the final word from all three bank regulators.”
Another area raising compliance concern is work being done by the Consumer Financial Protection Bureau, Burniston added: “The other thing is there are regulations the CFPB has to issue that will require organizations to collect and send to the government a lot of information about small business lending -- including loans made to minority- and women-owned businesses,” he said. “Those are expected to be pretty comprehensive rules. The CFPB has to have those out by the end of March.”
That double whammy – CRA revamping plus the bolstered CFPB regulations have combined to heighten anxiety, Burniston said. “Those two things together could land at the same time. They’re intertwined in a sense. But those are raising a lot of concerns and the ability to implement those at the same time has a lot of people a little bit concerned – a lot concerned.”
Read next: Why should we care about CFPB consumer complaints?
Redlining, appraisal bias and fair lending loom large among the issues being tackled by regulators, Burniston noted. Consequently, added or bolstered regulatory guidance is sure to follow, he suggested.
Wolters Kluwer officials tout the annual survey for its ability to essentially take the pulse of the US banking industry by measuring trend information on regulatory and risk concerns, realized and anticipated regulatory impacts on institutions and the level of banks’ current risk management efforts. The survey’s data inputs generate a regulatory and risk management “pain index,” officials noted. The survey was conducted from July 27 to Sept. 9 of this year.
When asked about the overall compliance and risk areas demanding their focus, respondents identified the ability to manage risk across all lines of business as their top concern (59%), closely followed by the ability to maintain compliance with changing regulations (58%), and ability to keep track of regulations (55%) and ability to demonstrate to regulators (54%) - all factors up by several points over last year’s survey.
Concern over new regulations also jumped considerably, from a score of 67 in 2021 to 114, a 47-point increase. Banks are anxiously awaiting a final rule on Community Reinvestment Act (CRA) modernization. Also on the horizon is the release of final rules on small business lending data collection implementing Section 1071 of the Dodd Frank Act, which are expected to have a significant impact and be issued no later than March 31, 2023.
According to the survey, 68% of respondents are “very concerned” or “somewhat concerned” about the anticipated small business lending data collection rule and their institutions’ ability to manage those requirements. Next on this list of compliance concerns are Bank Secrecy Act/Anti-Money Laundering rules (63%); fair lending laws (63%); Beneficial Ownership, UDAAP rules and CECL (Current Expected Credit Losses) requirements (all tied at 62%). CRA modernization (58%) and state regulatory rules (57%) closed out the list.
