It’s Risky Business
By: Kevin Shaw, Regional Director
Let’s start with something we can all agree on, “Compliance is one of the top things that keep us up at night as credit union professionals. With that being said, I will make a bolder statement “Every credit union in the country is out of compliance in some way”. In most cases, this is not because of a lack of effort but due to regulations consistently changing to make it almost impossible to stay compliant. Due to a period of unprecedented increase in regulation, it is difficult to stay compliant in all aspects of business. On top of that, credit unions continue to grow in complexity and the compliance cost put a strain on financial institutions. According to CUNA, regulatory costs for credit unions have increased between 28% to 43% since 2010 with an average overall increase of 39%.
As a financial institution, we are in the risk management business. We cannot eliminate risk, but we do need to manage it. Credit unions have to contemplate the cost of compliance versus the liability of non-compliance every day. For example, it is highly recommended to comply with all aspects of Bank Secrecy Act regulations regardless of the cost because of the risk of potential high fines and penalties as well as recent increased regulator focus. On the other hand, I have heard many stories over my career about how credit unions struggle with the decision to purchase new or updated documents (loan forms, account cards, and disclosures) to stay compliant, but the costs and waste can be outrageous. In many cases, the credit union still has many of the forms left from a purchase several years ago. Does a credit union continue to use the existing documents that are probably out of compliance or spend money on new documents that will probably go to waste in a year or two? Is it just the cost of doing business?
The reality is these are business decisions. The credit union needs to manage the risk against the liability. If non-compliance occurs, the board of directors is ultimately responsible, the management & staff pick up the pieces, and the membership could have to pay the price.
The good news is resources and tools are available.
- Credit Union National Association (CUNA) Compliance Department for federal regulations
- Software programs like ComplySight for managing and scheduling compliance reviews
- Illinois Credit Union System including Office of General Counsel, LSC, and Regional Directors for state specific regulations
- Regulators, NCUA or IDFPR for solid guidance and areas of necessary focus
Earlier, we spoke about increased regulation. It is important to remember that your credit union can make a difference. CUNA currently has a campaign named “Common Sense Regulation” directing legislators toward rules that make sense depending on the financial institution’s size and complexity. The Illinois Credit Union League (ICUL) advocacy and regulation team is continually and proactively working on bills that can benefit credit unions, but also blocking bills that are potentially troublesome for credit unions before they can become a regulation. When CUNA or ICUL communicate a “Call to Action”, help yourselves as constituents by sharing inform and your point of view with lawmakers about current legislative bills that could adversely affect or benefit your membership.
There is no magical solution because every credit union is different. It is important to use your resources and develop a compliance strategy and philosophy. It is imperative to keep the board of directors informed of relevant upcoming regulations and potential risks. Finally, don’t ignore compliance. Instead, have an honest discussion where your credit union wants to be on the risk scale.