Post Dodd-Frank and the financial
crisis of 2008, change seemed to be a
constant in compliance with new and
expansive regulatory activity. With the
current administration, many perceive
that regulatory roll-back means that the
overall compliance effort is somehow
reduced. However, any regulatory or
business change for financial institutions,
either expanding or pulling back, are
changes that need to be proactively managed. Therefore, it is important to communicate to executive management that
regulatory “relief” creates change, and
small errors in properly identifying the
scope of the change initially, such as what
is or is not actually changed, may result
in potential unexpected consequences of
significant magnitude in the future.
Identifying Changes
Perhaps unsurprisingly, the most dif-
ficult task of regulatory change manage-
ment is that of identifying changes that
in some way impact your particular
financial institution (FI). There is the
risk that there are nuances to regulatory
change that could be overlooked or not
anticipated by any technology solutions
that some banks—particularly larger
ones—might rely upon. And generally,
Changes at the federal level are often
more high profile, and thus, tend to be
more readily identified. Additional regu-
latory changes may be found at both the
state and municipal level. Institutions
may want to consider maintaining an
electronic inventory of all regulations,
including federal, state, and local, along
with their applicability to the institution.
If identifying and tracking regulatory
change is a manual process, an institution may want to consider utilizing web
alerts to remain apprised of upcoming
changes. Federal regulatory agencies
allow email alerts via their web sites.
Many states offer similar functionality.
Additionally, compliance officers can
set web alerts via a search engine, such
as Google. This would allow an institution to receive an email alert whenever
a certain key term, such as TRID or
HMDA, shows up in a web posting.
Those with regulatory change manage-
ment solutions should verify that they
are receiving all applicable content via
their system. Federal regulations are
often standard in such systems, but state
and municipal content may not be.
Whatever the source of the regulatory
change, it is critical to identify the full
scope of the impact of any regulatory
change on your particular institution.
Your FI consists of a unique interplay of
systems and controls which constitute
part of your Compliance Management
System framework. In an era of regula-
tory pull-back, dismantling a key control
for a regulation that no longer applies
may dismantle a key control for regula-
tions that also rely upon that control
for risk mitigation. Therefore, include
all relevant perspectives in your impact
analysis, such as from Compliance,
Legal, Risk and Human Resources. You
need to be concerned about any changes
you are making today, no matter how
small or seemingly inconsequential.
Anything that you are turning off today
may have major unforeseen consequenc-
es in the future.
Tracking Changes
Whether change is externally driven,
in the form of regulatory change, or
internally driven, in the form of a
business change, there are logistical
considerations. Initially, any Regulatory
Change Management Program should
include an organized system (automated
or manual) to be used as an inventory
of applicable regulations, and for tracking any change status. Specifically, with
regulatory change, there should be an
understanding of whether changes are
in a “final” rule status, and the expected
effective date. Regulatory changes
subject to additional modification or
interpretation will need to be monitored
Managing Change: How to Ensure
Your Systems are Tracking Regulatory
Changes and Validating the Data
MANY COMPLEX SYSTEMS can be better understood through the lens of Chaos Theory. This mathematical concept generally proposes that unpredictable or random events can result from seemingly normal circumstances, and small alterations in initial
conditions can lead to consequences of a greater, unexpected magnitude. Given
the number of regulatory frameworks, operational systems, and overall strategic
initiatives in play at any given time at a financial institution, it is critical to
identify, track and validate regulatory change to try to mitigate risk and minimize
any unexpected occurrences. A Regulatory Change Management Program is
critical to create predictable order out of chaos.
