Compliance Leaders' Q&A Series: Banking

As part of Regology’s Compliance Leaders' Q&A Series, we asked a Sr. Director of Corporate Compliance at a large bank for some insights.

How do you see the regulatory landscape evolving for the banking industry?

There will be more effort to adapt banking solutions in a safe and sound manner while responding to pressures from FinTech. This requires a proactive and strategic approach that balances innovation with risk management, regulatory compliance, and customer focus. By adopting a balanced approach, banks can effectively compete with FinTech firms while maintaining the trust and confidence of their customers and stakeholders. Also, there will be a greater focus on having the ability to connect to the next generation who are looking for Crypto, mobile banking, faster payments, and ease of use.

What are the biggest compliance challenges the industry faces this year?

ESG disclosures: There is growing investor and regulatory pressure on banks to improve their ESG performance, particularly with regard to climate change and sustainability. Banks need to develop ESG strategies and policies that align with regulatory requirements and stakeholder expectations, while also ensuring that they meet their obligations to their customers and shareholders.

Proposed 1071 rule updates of the Dodd-Frank Act: The Consumer Financial Protection Bureau (CFPB) proposed a rulemaking to amend Regulation B, which implements the Equal Credit Opportunity Act (ECOA), to provide additional data on small business lending. The rulemaking process is ongoing, and the final rule may differ from the proposed rule.

Continued implementation of The Anti-Money Laundering (AML) Act of 2020: Regulators continue to focus on AML and counter-terrorism financing (CTF), and are increasingly using technology to enhance their surveillance and detection capabilities. Banks need to be vigilant in monitoring their transactions and identifying potential risks, while also ensuring that their systems and processes are compliant with regulatory requirements. It requires financial institutions to invest in new technologies, update their policies and procedures, and train their employees to meet the new requirements. Some key provisions of the AML Act of 2020 include beneficial ownership reporting, enhanced due diligence, and coordination and information sharing, among others.

Focus from CFPB on OD/NSF fees and other “junk fees”: The Consumer Financial Protection Bureau (CFPB) has recently been focusing on the issue of overdraft (OD) and non-sufficient fund (NSF) fees, as well as other "junk fees" charged by financial institutions as part of a broader effort to protect consumers and promote financial inclusion. This will require greater transparency and accountability around these fees.

Interest rate risk management: Continued efforts in having a deep understanding of the balance sheets, the broader economic and market environment, and the evolving regulatory landscape. It is a complex and dynamic challenge that requires ongoing attention and investment to ensure that banks are well-positioned to manage their interest rate risk in a rapidly changing world.

Counter-party and third-party risk management: Efforts to minimize banks’ exposure to potential financial, operational, and reputational losses through improved risk management. This includes risk assessment, due diligence, contractual agreements, monitoring performance, risk mitigation, and reposting and escalation.

Successful LIBOR transition: The replacement of the London Interbank Offered Rate (LIBOR) with alternative reference rates (ARRs) needs to be executed in a timely and orderly manner, while also minimizing disruptions to the financial markets and the broader economy. LIBOR is widely used as a benchmark interest rate for financial contracts and products, and its discontinuation poses significant challenges for the financial industry.

How can compliance become a competitive advantage?

A sound compliance program helps manage regulatory risks, allowing management to focus its time on its core competitive advantage/market offering.

In order for compliance to become a competitive advantage, organizations must view compliance as an integral part of their overall strategy and culture, and invest in the necessary resources and systems to support effective compliance management. This includes developing strong policies and procedures, providing ongoing training and education, and regularly monitoring and assessing compliance performance.

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