ABA Bank Compliance - July/August, 2009

Partners’ Regulatory Compliance

Percent That Track Partners’ Regulatory Compliance

■ 2007 ■ 2009

100% –

80% –

60% –

40% –

20% –

0% –

< $100 M

$100 M to $499 M

$500 M to $999 M

$1 B to $19.9 B

> $20 B

Engagement in Affiliated Business

Percent Engaged in Affiliated Business Which Must be Disclosed Under RESPA

100% –

■ 2007 ■ 2009

80% –

60% –

40% –

20% –

0% –

< $100 M

$100 M to $499 M

$500 M to $999 M

$1 B to $19.9 B

> $20 B

Automation for Compliance Risk

Type of Automation Used for Compliance Risk Assessment

100% –

Manual 80% –

60% –

40% –

Desktop Application

20% –

Automated

0% –

< $100 M

$100 M to $499 M

$500 M to $999 M

$1 B to $19.9 B

by banks $500 million and above, fewer banks are using brokers—especially the largest, which went from 19 percent saying they didn’t use brokers in 2007 to 87.5 percent saying they don’t use brokers in 2009. That’s a drastic turnaround based mostly on the brokers being a prime culprit in the housing bust that thumped the economy. The risk of having such affiliations has caught on in a major way.

Testing and Monitoring

One question in the survey asked about frequency of compliance reviews for new products or systems. In both cases the occurrence of such reviews being either usually or always continues to edge up from 2007 to 2009. However, almost 1 in 4 banks are only conducting compliance reviews for new systems occasionally.

Other survey results reveal that more than 50 percent of banks use a common desktop application (like Microsoft Excel) for “automating” their compliance risk assessment (true for all size banks). Manual analysis is the next most likely form of risk assessment, decreasing in use with size. For banks greater than $20 billion, manual is used by a mere 9 percent of banks with twice as many using either a purchased tool ( 18. 2 percent) or a specialized automation tool developed in-house ( 18. 2 percent).

Testing systems is one thing, but banks still have to test their employees as well. According to the survey, there has been an increase in banks formally testing employees for their compliance knowledge after training. Among the largest banks, 100 percent answered in the affirmative.

In some cases, testing and performance dictate salary. According to the results, although 74 percent of chief compliance officers say they are formally evaluated annually on the basis of the bank’s compliance performance, only 22 percent say it has ever significantly affected their salary (versus 44 percent saying it had in 2007).