Banking compliance and the 2020 CARES Act
In the face of massive impacts from COVID-19 on the worldwide economy, and as a response to the unprecedented explosion in unemployment and business closures, the federal government’s CARES (Coronavirus Aid, Relief, and Economic Security) Act was passed with overwhelming bipartisan support back in March.
Intended to provide “small businesses with the resources they need to maintain their payroll, hire back employees who may have been laid off, and cover applicable overhead,” the program was designed for fast implementation by lending institutions and platforms in order to keep employees on payroll and keep businesses operational.
The rapid rollout of the CARES Act, while good for business owners, brought with it a host of new compliance requirements for lenders, who were given only days to implement the processing of applications. According to the NYU School of Law’s Program on Corporate Compliance and Enforcement, “to avoid criminal and regulatory exposure, transparency and accuracy should be at a special premium in the execution of applications for loans under the CARES Act.” The Office of the Special Inspector General for Pandemic Recovery (SIGPR) was created to investigate fraud in lending and borrowing related to the CARES Act.
The cost of compliance for financial institutions has already reached a staggering quarter of a trillion dollars each year, and is on track to soak up 10 percent of revenue by 2022. Given the existing financial and logistical challenges of compliance for lending institutions, as well as the new ones posed by the ongoing implementation of the CARES Act, banks need nimble and adaptive responses to control costs while staying in compliance. Lenders need to ensure that both their personnel and their technical infrastructure are up to the challenges ahead.
Fostering a culture of “collaborative compliance”
For bank leaders and officers, corporate culture must expand to include a culture of collaborative compliance. This allows each stakeholder throughout the organization to become aware of his or her assigned responsibilities in relation to regulatory compliance. These stakeholders should be actively engaged in minimizing operational and third-party risk.
In an age of work from home as the “new normal,” it is more important than ever to ensure that everyone is on the same page, no matter where they are working from. With less in-person oversight and limited visibility into the operations of other departments, clear guidelines for each employee and team can make the difference between effective and ineffective compliance.
Regulatory technology, or “regtech,” can play a vital role in keeping highly regulated organizations compliant, while constraining costs and alleviating operational strain and inefficiencies. By integrating smart, tech-based solutions and platforms in the lending lifecycle, organizations may be able to enhance compliance through more clearly delineated processes.
- Although borrowers are required to provide payroll estimates when borrowing through the CARES Act, according to the Treasury Department, lenders are expected to make a good-faith effort to substantiate their calculations and work with borrowers to remedy errors. Regtech can assist with due diligence and reduce risk for lenders while staying in compliance with CARES Act requirements.
- As CARES Act repayment requirements continue to develop at the federal level, regtech can oversee regulatory developments and ensure that stakeholders both within the institution and in the borrowing community are kept abreast of the latest changes and processes.
- Compliance often requires a cross-functional, interdepartmental approach, so a tool with dynamic workflows may enable institutions to delegate queries to relevant team members, and stay on top of outstanding requirements. The result? A culture of risk management that embraces accountability.
- In order to better protect the institution moving forward, regtech can assist with data collection for both board reviews and audits. This may allow for a demonstration of proper oversight and institutional processes for everyone from governmental regulators to internal teams and in-house counsel.
The CARES Act is a landmark effort to counter the devastating economic impact of the worldwide COVID-19 pandemic. In a time of fear and uncertainty, it is more important than ever for lenders to exercise caution and good judgment. With the help of regtech, lenders can feel more confident in their people and processes.
Compliance processes and platforms are no good if they’re not used. For banks, credit unions, and fintech platforms, regtech can augment internal processes by adding technical expertise, legal knowledge and operational ease. Taking a proactive approach to risk reduction may better equip financial institutions to pivot and adapt to the increasingly complex regulatory environment.
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