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Publication: Independent Banker
Date published:
Language: English
PMID: 21001
ISSN: 00193674
Journal code: BINB

It wasn't long ago that most community banks could address compliance concerns just by asking an employee to wear an additional compliance hat part-time and using outside consultants for spot checks. But now that Congress and regulators have added a host of new regulations and expanded existing ones, many community banks are taking a serious look at trying new approaches with their compliance programs, or revamping them altogether, to keep up.

"We are on the forefront of revolutionizing banks' compliance programs," says Matthew Evans, president and CEO of Bankers Service Corp. in Lexington, Ky. "Banks are going to have to be leaner, meaner and smarter in the compliance area because, right now, not as many dollars are being spent on compliance training."

To cut costs while making their programs more effective, community banks are considering ideas such as dedicating one or more employees to handle compliance duties full-time; forming a compliance committee of managers from all parts of the bank; increasing compliance training for staff, management and the board; and relying more on outside consultants.

* Gather help from within

Many community banks are emulating larger banks by forming compliance committees of managers from various departments. Doing so can alleviate compliance officers' workloads and help them better monitor issues within various operations of the bank, says Nancy Stertz, a financial-institutions compliance manager at LarsonAllen LLP in Minneapolis. "Having a compliance committee would help [community banks] manage their expenses and help the compliance officer who might feel that [he or she] can't do their job well because of the tremendous burden," she says.

The main challenge to making such committees effective is getting the various managers to follow through on action plans, says David Bequeaith, principal consultant at Bequeaith Banking Solutions LLC in Overland Park, Kan. He recommends that committees list their objectives before meetings and encourage participants to think of ways to address the stated compliance issues. Minutes should be taken at every committee meeting, he says, and each participant should be accountable for actions discussed there. For example, each time regulators mandate a new compliance requirement, the manager of the affected department should help the compliance officer develop an implementation plan.

"It creates buy-in by the employees in that area; that's one of the big missing links for a lot of community banks," Bequeaith says.

* Handle documents efficiently

More community banks are centralizing the production of documentation required for compliance regulations, particularly disclosures to consumers, Stertz says. For mortgage documents, some community banks are coordinating the signing of disclosures with title companies when the transactions close.

Centralizing the documentation process can minimize many errors in obtaining the proper disclosures, Evans says. However, banks need to make sure loan officers and branch personnel are appropriately communicating to the back office all relevant information for compliance documents-such as the interest rate on a mortgage that an applicant hoped to obtain and the number of rooms in the house she is buying.

* Weigh educational resources

Banks are also applying technology to training needs, such as ICBA Webinars and audio conferences or Web sites such as Web-based training for employees disseminates compliance information quickly. Compliance officers also are using online chat rooms to ask questions, compare notes and discuss how regulators interpreted ambiguous regulations during examinations, Evans says. Reg O in particular, pertaining to insider loans, has received a lot of scrutiny from the regulators.

Audio conferences and Webinars are good for updating information, Bequeaith says, but compliance officers should attend longer educational sessions to make sure they are well versed in the fundamentals of compliance monitoring.

Banks also need to take the time to educate board members about compliance issues, to make sure directors are able to oversee programs adequately, Evans says. Many banks have conducted off-site retreats. Others have their compliance officers attend board meetings quarterly to update directors.

* Use software effectively

More community banks are using software to monitor the banking activity of high-risk customers, as required under the Bank Secrecy Act, instead of manually sifting through all transactions, says Kristine Hoefler, a partner in Plante & Moran PLC's Columbus, Ohio, financial-institutions practice. However, employees must be careful to set software parameters to match their business model or the software will crank out too much data to be effective. To better catch unusual transfers over $10,000, banks may want to flag wire transfers from retail customers and not those from commercial customers that routinely conduct business overseas, she says.

Likewise, when using software to catch information in loan documents that would trigger disclosures, bankers need to properly define the purpose of the loan and the collateral type so the software can automatically detect which compliance requirements should be met, Bequeaith says. That way, employees don't have to make such decisions manually, which is much more time-consuming and prone to error.

The amount of time, effort and money that banks now have to put into their compliance programs may not yet affect their ability to compete, but if regulators deem their programs inadequate to handle the new workload, their reputations could suffer huge hits-creating opportunity for others, experts say.

"Some of these banks have been around for a hundred years," says Stephen Nash, a senior consultant at Dixon, Davis, Bagent & Co. in Granville, Ohio, "and if they have to publish that they're under a formal agreement with regulators, that could cause problems with their reputation."

Author affiliation:

Katie Kuehner-Hebert is a freelance writer in San Diego.

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