DS News

DS News Jan 2023

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Page 17 of 83

16 SURVEY EXAMINES RISK, COMPLIANCE CONCERNS According to the 10th annual Wolters Klu- wer Regulatory & Risk Management Indicator survey, keeping pace with the volume, scope, and breadth of regulatory changes tops the list of key concerns facing U.S. banks, credit unions, and other lenders. is finding marks the second consecutive year in which an insti- tution's ability to manage regulatory change in an effective and compliant manner was viewed as the chief challenge for institutions of all asset sizes. "Unquestionably, this year's survey findings point to the critical role that a robust regulato- ry change management program—particularly one featuring an up-to-date regulatory li- brary—plays in helping ensure compliance and addressing risk across a lending organization," said Timothy R. Burniston, Senior Advisor for Regulatory Strategy with Wolters Kluwer Compliance Solutions. e Indicator takes the pulse of the U.S. banking industry by measuring trend in- formation on regulatory and risk concerns, realized and anticipated regulatory impacts on institutions, and the level of banks' current risk management efforts. e survey's data inputs generate a regulatory and risk management "pain index." Wolters Kluwer Compliance Solutions conducted the Indicator from July 27 to September 9, 2022, and from 328 respondents generated a Main Score of 94, a decline from the 2021 score but a result closer to pre-pan- demic scores. is year's decline was driven largely by a significant drop in the dollar amount of regulatory penalties and fines and the number of associated enforcement actions compared to 2021. e Main Score is based on several factors, including the number of new federal regulations, the number of enforce- ment actions, and the dollar amount of fines imposed on banks and credit unions over the past 12 months, together with survey respon- dents' input. When asked about the overall compliance and risk areas demanding their focus, respon- dents 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 regula- tions (58%), ability to keep track of regulations (55%), and ability to demonstrate compliance to regulators (54%), all factors that were 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 Reinvest- ment 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. Sixty-eight percent 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 and Anti-Money Laundering (BSA/AML) rules (63%); fair lending laws (63%); Beneficial Ownership, UDAAP rules, and CECL (Current Expected Credit Losses) requirements (all tied at 62%). CRA modern- ization (58%) and state regulatory rules (57%) closed out the list. Against the backdrop of technology's increasing incorporation into banking practices and the rise of fintech, respondents also cited concerns about the continuing prevalence of manual processes and use of spreadsheets "sometimes or often" (85%), versus only 9% who indicated they rarely used manual pro- cesses. e survey asked about lenders' use of digital technologies to support their businesses. Nearly three-quarters of respondents indicated they have made some progress with digitizing their lending capabilities, although only 28% indicated their institutions have made signifi- cant progress or are fully digitized. "Clearly, the banking industry increasingly recognizes the upsides in employing and more fully leveraging digital processes and automa- tion, particularly given their impact in reducing or eliminating time-consuming and less accurate manual processes from their everyday workflows," said Steven Meirink, EVP and General Manager, Wolters Kluwer Compli- ance Solutions. "Ultimately, embracing digital transformation can help improve the customer experience, foster inclusivity, and allow lenders to more effectively compete." Looking forward to 2023, the top risk management priorities identified include cybersecurity (72%), compliance and credit risk (both at 51%), followed by operational risk and third-party risk—27% and 16%, respectively. "Clearly, the banking industry increasingly recognizes the upsides in employing and more fully leveraging digital processes and automation, particularly given their impact in reducing or eliminating time-consuming and less accurate manual processes from their everyday workflows." — Steven Meirink, EVP and General Manager, Wolters Kluwer Compliance Solutions Journal

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