Change is here for the regulators and the regulated

A waning pandemic, improving technology and a new administration in Washington could soon influence the compliance environment. We examine these three areas in the latest BAI Executive Report.

An approaching end to the pandemic, better technology and a new administration in Washington – all these factors could soon influence the compliance and regulatory environment that financial services organizations face.

As the U.S. emerges from the COVID-19 crisis, financial services leaders will need to figure out how much of the emergency measures put in place in early 2020 should be made permanent, and then how to put the appropriate guardrails around them. Technological advances add to the ongoing internal discussions about how much of the compliance function to automate. At the same time, the shifting priorities of federal agencies under President Biden will lead banks and credit unions to make corresponding changes in how they run their businesses.

We examine all three of these areas in this latest BAI Executive Report on compliance and the regulatory realm.

For our lead article, contributing writer Dawn Wotapka asked several financial industry experts what they think the future holds. Their headline consensus—that there will likely be significantly tighter regulation under the Biden administration—is hardly a shocker. Of greater interest, they say, is where that tightening might be concentrated and how financial services providers would be most affected.

The Consumer Financial Protection Bureau–the consumer watchdog agency empowered under President Obama, but largely sidelined under President Trump–is already flexing some muscles. In late June, the CFPB initiated new rules raising the hurdles for mortgage lenders seeking to foreclose on delinquent accounts. This is consistent with widespread expectations that the CFPB will stake out strong positions on lending, credit reporting and access, deceptive-practices claims and other prominent issues.

Heightened regulation is generally seen as a headwind for any industry, but some experts in this month’s Executive Report say they’re willing to reserve judgment until they see more. “If the regulations are smart and thoughtful, this can be a good thing,” one neobank leader said.

Anticipation of greater accountability extends to the board level – this includes redoubling efforts to enforce Bank Secrecy Act and anti-money laundering rules, intensifying oversight of technology innovations (a category including cryptocurrencies and privacy concerns) and giving more attention to climate-related risks.

Shifting regulatory priorities, as well as the lasting impacts of the pandemic, could also transform how banks and credit unions conduct their compliance training programs. Our article from contributing writer Katie Kuehner-Hebert finds that the banking industry aspires to become more creative, not only to meet today’s post-COVID realities but also to prepare for future trends.

For instance, institutions may need to rethink their compliance oversight and training curricula to ensure that employees working from home are still preserving customers’ privacy and protecting sensitive information during their interactions. How best to deliver virtual training is another important consideration. Some financial firms are finding that more shorter sessions are better than trying to do all-day trainings.

Providing training solutions for banks and credit unions has long been one of the core businesses within BAI. Since the pandemic began, our team has seen a growing trend of cross-training employees, as an increasing number of financial services providers adopt the “universal banker” model in response to customers moving more of their routine transactions to digital.

Another shift underway is the growing acceptance of regulatory technology for use by financial institutions and regulators alike. Our article by contributing writer Lauri Giesen explores how the experience of managing through the pandemic led both the regulators and the regulated to try new approaches. As one industry participant told her, “There is no going back. Banks are not sending boxes of documents when they can do everything digitally.”

The technology as currently applied also has internal benefits for banks and credit unions: scaled-up operations, lower costs and improved accuracy. Looking ahead, expect even more use of artificial intelligence, machine learning and insights generated via big data in this area.

Alongside an increasing reliance on technology in the compliance and regulatory space, financial services providers have a greater responsibility to make sure their data and digital systems are secure from internal misuse and outside threats.

John Willis from Red Hat offers a handful of pointers on how banks and credit unions can manage these risks, starting with the basic business step of making cybersecurity a top priority in the organization. He also advises creating systems that balance the imperative to safeguard information with providing access to those who need it, and then regularly auditing that balance.

Terry Badger, CFA, is the managing editor at BAI.

Download “Reshaping the regulatory landscape,” the latest BAI Executive Report.