Institutions Face Greater Regulatory, Risk Management Pressures

Institutions Face Greater Regulatory, Risk Management Pressures

06/18/2013 BY: ESTHER CHO

From new regulations to increasing fines, financial institutions—both large and small—reported feeling more squeezed by compliance and risk management pressures since the start of the year, according to survey results released by Wolters Kluwer Financial Services.

To measure regulatory and risk management pressure, the Minneapolis-based company used an Indicator that calculated 10 factors concerning compliance, the regulatory environment, and risk management.

In January, the Indicator began with a baseline score of 100 after the company surveyed 400 banks and credit unions. After surveying 430 similar institutions in April, Wolters Kluwer Financial Services reported a score of 136.

According to the firm, significant increases in four main factors led to the higher score: the number of new federal

banking regulators; rising amount for regulatory fines; growing number of resources needed by banks and credit unions to meet requirements; and the challenges facing senior leadership in managing and controlling risk.

The rising amount in fines held the highest score of 408, with the spike mainly driven by the $9.3 billion mortgage servicing settlement with the Federal Reserve and the Office of the Comptroller.

When banks and credit unions were asked what compliance concerns kept them up at night, 46 percent said regulatory reform in general (Dodd-Frank Act, Consumer Financial Protection Bureau rules), while 35 percent said lending regulations such as new mortgage lending rules from the CFPB.

Among the top concerns related to the Dodd-Frank Act, combined Real Estate Settlement Procedures Act (RESPA)/Truth in Lending Act (TILA) disclosure rules were cited as a main issue by 59 percent of respondents. Fifty-three percent also named mortgage servicing requirements and exam guidelines among top concerns, followed by 51 percent for qualified mortgage (QM) requirements.

When it comes to risk management, regulatory risk and fraud were at the top, with 56 percent and 33 percent of respondents categorizing those factors as significant concerns.

Smaller institutions (less than $1 billion in assets) were more concerned with asset and liability management, with 32 percent citing the factor as a top concern compared to 19 percent of institutions with more than $7.5 billion in assets.

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