Governance

Covid Compliance Challenges

August 5, 2020

SRA's Compliance Pros Share their Unique Perspectives

The past four months have been a whirlwind of day to day execution of priorities thrust upon the banking industry resulting from Covid-19 and the economic shutdown that followed its emergence upon U.S. society. Having risen to the challenges of facilitating unprecedented lending through the PPP small business program, in addition to working with existing borrowers on payment forbearance and mortgage refinancing among others, the industry faces additional challenges including compliance management.

On July 16, 2020 Michael Glotz, CEO and Founder of SRA, led a webinar discussion with two of the industry’s brightest experts, Matthew Neels, Senior Managing Director, Compliance Management and Kenneth Proctor, Managing Director of Risk Consulting on the compliance challenges banks face in the months and years ahead.

Matthew Neels shared details of increased compliance risk and the transformative role of the compliance manager. Compliance risk vectors such as macro-level economic pressures, consumer pressures, AML, and ongoing BAU rules create onerous compliance tasks for banks as they grapple with payments, defaults, bankruptcies, PPP fraud, among others. Compliance risk does not decrease, it only increases. Fallout in the coming months will spread as forbearance on payments and government stimulus fades away. How banks handle their collections and management of collection strategies is a primary area that must be addressed as it was overwhelmed during the last crisis. Complaint management, responding to customer complaints, and complaint escalation is another area that struggled during the last crisis. PPP, delivered in a hurried fashion with few checks and balances will require diligent compliance work assuring AML work and any fraud issues that arise. Decisions that looked correct in the heat of the moment may look or be incorrect following future, detailed examinations. Banks must continue BAU bench marking along with analysis and integration of new rules being released by all agencies. Algorithmic discrimination is new compliance hot button that has emerged.

For the remainder of 2020 and beyond, banks must keep their focus forward. Fair lending is a top risk for all banks along with bank diversity and the recent Supreme Court ruling on gender. Societal and social factors will be difficult to navigate. AML is witnessing increased enforcement,especially with Foreign Banks. Enforcement is a major revenue source for the Department of Justice, and it has bipartisan support. Compliance managers’roles are changing. Necessity for alignment with the bank’s strategic executive and board wings, require the ability to influence discussions and manage cost pressures and efficiency.

Ken Proctor discussed the realities and challenges of compliance costs and how to effectively achieve top efficiency and cost control. Three cost measures – technology; anti-crime BSA/AML software; digital services and an increase in volume and complexity of regulations all require business unit support and expertise. Business lines must accept accountability and responsibility for their compliance duties. Throwing bodies at this challenge which many banks have done in the past will not help or solve this challenge.Compliance must quickly evolve from a process of overbearing data collection and reporting to actively managing compliance risk on a day to day basis. (Ken discusses these points and others in detail on the webinar).

To summarize:  

  • Prepare for what lies ahead; forbearance,stimulus fallout and economic uncertainty.
  • Call center listening.
  • Revisiting AML/BSA programs.
  • Fraud controls.
  • Two to three year forward vision.
  • Are we putting enough correct investment into compliance risk?
  • Algorithmic model validations and the risk of AI discrimination enforcement actions.
  • Political risk.
  • Collaboration with business units and a shift of responsibility to them.
  • Using the correct technology.
  • Continued NIM pressure.

Matthew Neels and Kenneth Proctor will make themselves available to those that would like a one-hour discussion to provide one to one insight for bankers.

Please visit our website and view the webinar recording on this subject.

https://www.srarisk.com/resources/webinars

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