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2014 trends in compliance risk management for banks

Sageworks
September 13, 2014
Read Time: 0 min

Because of new regulations in the banking industry, compliance risk management is becoming increasingly important for bank management. The Accenture 2014 Compliance Risk Study confirms this theory and identifies five, key trends that have accordingly surfaced in banking.

1. Compliance programs are constantly evolving.

2. To achieve strategic goals, further investment in compliance is necessary.

3. There is a shortage of talent in risk management.

4. Innovative solutions are needed for portfolio growth and long-term sustainability.

5. In the future, compliance programs will be critical to developing a competitive advantage.

Constant Evolution

Five years ago, according to Accenture, 70 percent of respondents did not have a formal compliance program in place. The growth as of 2014 is significant: two-thirds of respondents cited they not only have programs, but their compliance programs report directly to the CEO or the Board.

However, the challenge with these new programs seems to be establishing and improving the compliance culture—hiring a Chief Risk Officer, providing incentives for preventing losses, and so on.

The study also found that 65 percent of respondents felt they needed to improve relationships with regulators. Aside from implementing a sound compliance program, ensuring accountability is a key, next step for many banks.

According to Paul Shaus of CCG Catalyst Consulting Group, “Banks that are proactive and self-police their programs will be looked upon more favorably by the regulatory agencies.” This means solving problems as they come up, as opposed to waiting on regulators to find them. It also means letting regulators in on the problems you have solved—even without their help.

Further Investment

As many compliance programs have only been around for a short time, additional work and investment are needed to achieve the strategic goals of the bank.

Ninety-two percent of respondents in North America expected compliance investments for their institutions will increase over the next two years. Additionally, one-third of respondents expected the investment to increase by greater than 20 percent.

The key areas of investment expected to increase include risk modeling and analytics, which may be in response to the respondents’ concerns with their institutions’ current abilities regarding management reporting and issue management.

Risk Management Talent Shortage

A recent article from American Banker confirms that competition for talent is a barrier to success for many banks, as compliance talent is key to building a sound program.

With that said, 34 percent of respondents indicated they are currently hiring for risk management positions, while 46 percent are planning to hire in the near future. Facing this much competitive demand, however, many banks have trouble identifying and attracting quality applicants due to the lack of formal, risk management programs and certifications, as well as inadequate compensation packages, according to American Banker.

To address these concerns, nearly 60 percent of respondents said they are competitively hiring through professional recruiting and head-hunting firms. Only 8 percent indicated they have no skill gaps in the compliance function.

Innovative Solutions

According to Accenture’s findings, banks need to go beyond traditional solutions to facilitate growth and long-term sustainability in compliance programs. Solutions also need to address expectations set by senior management, maximize human capital, as well as mitigate the rising costs of compliance.

Two examples of thinking outside the box are shared services and automation or outsourcing. Shared services involve spreading responsibilities across an organization, which can ensure that skills are met by various departments. Approximately 93 percent of respondents indicated they have a team, composed of people from different departments, involved in setting compliance standards for the bank. This practice creates a more holistic set of standards and more involved workforce.

Another option is automation or outsourcing of responsibilities. By investing in an automated risk management solution, banks can become more efficient and increasingly appease examiners by providing comprehensive and defensible documentation. In some situations, a third-party workforce, instead of a software solution, can be employed to meet demands within compliance.

The Future of Compliance Programs

In order to build and maintain a competitive advantage in the future, it is necessary for banks to constantly evaluate the successes and shortcomings of compliance programs and make changes as needed.

The key drivers of demand for increased compliance resources cited by respondents in North America were addressing the impact of the changing regulatory environment, building and periodically validating compliance risk management models and maintaining compliance risk within acceptable levels.

For more information on risk management best practices, check out this article on steering away from Excel-based risk management practices.

About the Author

Sageworks

Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

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