MGMT IANCE MANAGEMENT
BY CARL G. PRY, CRCM
Three Pressures Compliance Officers Face in 2009
THIS YEAR IS SHAPING UP TO BE A GAME-CHANGING YEAR in
the banking industry as a whole, as well as in compliance. Compliance
professionals face many pressures from all angles—from the regulators
and examiners, of course, but also internally and even from customers.
What changes have you made in how you manage your compliance program? Or have you made any changes at all?
Many demands are placed on Why risk it?” That might be difficult,
compliance officers on a daily basis, however; the thresholds are only 1. 5
of course, but in 2009 three distinct points (for a first-lien loan) and 3. 5
pressures will impact our tasks going points (junior-lien) above what the
forward. The key here is how we plan Fed has determined to be a normal
for and manage them. rate . Do you want to artificially limit
your business because of a compliance
concern?
New rules on credit cards will be
mandatory July 1, 2010 (maybe earlier,
if some in Congress have their way),
and they significantly change most
everything regarding non-real estate
secured lines of credit. This is all part
of the Fed’s rolling review of Reg. Z,
with all provisions eventually slated to
be put under the microscope. So we’re
not done there yet.
Expect to see more regulation in
many more areas of banking, from new
lending standards rules (is the loan the
“right loan” for the customer?) to ser-
vicing, which will address how you deal
with distressed borrowers. Unfair and
Deceptive Acts and Practices (UDAP)
concepts are also getting a lot of play,
with new rules likely coming regarding
marketing and lending practices.
How are you planning for all these
changes? Many will take months to
implement, and it’s always a good idea
to start sooner rather than later. Make
management aware of the magnitude
of each change, and form working
groups and project teams with repre-
sentatives of affected areas. Also ensure
you have sufficient resources to do the
job, as one thing we do know is that
these changes will not be cheap.
1. More Regulation
This is nothing new, of course—we’re
used to dealing with new rules and
regulations—but lately the pace seems
like we’re on fast-forward. Mortgage
lending in particular is changing before our eyes, with new RESPA and
Regulation Z rules becoming effective
soon. The majority of the new RESPA
rules, with a brand-new GFE and
revised HUD- 1 and a host of other
changes, become mandatory January
1, 2010. New Reg. Z rules creating a
new class of mortgage loans (“
higher-priced mortgage loans,” or what
some call HOEPA-lite loans) kick in
October 1, along with accompanying
HMDA rate spread threshold changes.
It doesn’t help that the HMDA changes
occur mid-year, so there won’t be a
clean changeover from one reporting
year to the next.
These changes affect not only disclosures but also underwriting. A lender must demonstrate (when making a
higher-priced mortgage loan) that it
did not disregard the borrower’s ability
to repay the loan, which involves verifying and documenting factors specified in the final rule. The temptation
is to say, “In that case, we just won’t
make any loans that trip the threshold.
2. More Attention From Your
Examiners
Bad news always rolls downhill. Events
affecting the larger world of banking
put pressure on Washington to “do
something about it.” They then lean
on the regulatory agency chiefs to
find and fix the problems. And so on,
down to examiners reviewing individual banks.
This is a risk management exercise
on their part. Increased levels of risk
to a bank (and to the industry in general) must be mitigated to the greatest
extent possible; therefore, exams will
be stricter than in the past. We’re already seeing this in areas you’d expect:
lending again. Fair lending exams are
becoming more intensive, with statistical analysis becoming more the norm
than the exception for most banks.
Speaking of risk management, performing risk assessments is quickly
becoming a favored course of action.
Banks must perform risk assessments
of BSA/AML, fair lending, and vendor/
third-party activities, among others.
Expect this trend—examiners wanting
to see your evaluation of where risk lies
in your bank—to continue.
Fines and penalties, including for
BSA (including OFAC) and flood
insurance violations, continue to be
assessed. Make sure you have management’s attention on these issues to ensure you have the resources you need
to avoid being the next target.
3. Conflicting Risk
Management Pressures
The third pressure faced by compliance
officers in 2009 (and beyond) has to do
with the current banking environment
and individual banks’ responses to it.
Everything we see and hear coming
