4 Steps to Prepare for Regulatory Change in 2018

Banks had a recent win in Washington. Behind closed doors, President Trump signed a Congressional bill to overturn the Consumer Financial Protection Bureau (CFPB) rule banning mandatory arbitration clauses.[1] As initially written, the CFPB rule would have opened banks and credit unions up to a flood of litigation. The new bill is a sign of support from Washington as banks face looming regulatory changes.

While this is an overall win for the financial institution industry, regulatory complexity is a hard trend that we believe financial institutions need to continue to ensure that they are thinking about the risks to their business differently.

Preparing a Regulatory Response

Looking forward to 2018, we see numerous regulations still in place that have passed over the last several years. Some have started to take effect. Others, like CECL, have implementation deadlines in the future but are so pressing that banks already are working through process checkpoints. The environment is such that regulatory change budgets have evolved into “change-the-bank” budgets, because banks face so many operational changes to meet new standards.

Small institutions have the benefit of being more agile than their larger industry counterparts. By taking a holistic approach to managing operational changes necessary for compliance, your bank can implement a useful regulatory preparedness and response methodology. Of course, this requires keeping an eye on developments. It also demands that leadership embraces a change mindset and shares it down through every other facet of the bank, from executives and board members to members of the team interfacing with customers.

A balanced awareness/action, risk/reward foundation can help your organization move into 2018 prepared to respond to regulatory change with agility. We have outlined four steps to help you build an implementation plan:

1. Eliminate Complexity: Simplify your business model and operational structure. Begin by identifying and instituting user-friendly IT systems, and keeping the number of applications in your IT system to a minimum. Communicate consistent, concise business priorities to stakeholders and employees. Focus on your core priorities and activities, and outsource all others to a trusted utility supplier. Automate monotonous processes to free your team to focus on strategy and tasks that demand human intellect and judgment.

2. Redefine Your Risk Management Culture: A strong risk management culture involves everyone in the institution. The consequences are steeper than ever. A single human error can threaten the entire institution. Your risk management processes should start with core organizational principles and values. With those fundamentals in place, establish training that prioritizes understanding over consequences. Every employee must understand and follow the rules – not out of fear, but out of a commitment to risk mitigation and the ongoing success of the company.

3. Involve Governance, Risk and Compliance (GRC) Professionals: GRC professionals should do more for you than advise. By involving these watchdogs at every step in business development, you bring risk management and compliance to the heart of the organization and its operations. They can help you to make sure you start with an awareness of the regulatory environment and take steps along the way to remain safe.

4. Anticipate Regulatory Change: On a related note, make sure you’re engaging experts to help you sustain an understanding of the regulatory landscape. During regular strategic planning meetings, review current compliance efforts and make plans for future activities to respond to upcoming regulations. Successful banks commonly engage experts who can perform horizon scanning to identify changes possible within a two to three-year window.

You’re in Good Company

For better or for worse, the current regulatory environment is a minefield for banks. Your ability to monitor, understand and address regulations impacts how you manage the size of your bank, your capital and liquidity structures, and even your competitive strategies. Knowing what regulations to prioritize is as important as knowing how to respond.

Whether you need a partner to keep an eye on the regulatory environment, survey your models and systems, advise on culture-level changes, and support your evolving operations, the HORNE Banking regulatory team is a dedicated partner. We proactively monitor regulations and laws impacting financial institutions. And we work by your side to help you transform regulatory hurdles into growth opportunities.

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[1] https://www.americanbanker.com/news/washington-cant-save-community-banks-it-cant-even-save-itself?brief=00000159-ad9c-deb8-a3fb-fffd80dc0000