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Banking Compliance: 6 Challenges All Banks and Credit Unions Face

by Pamela Michaels Fay

For at least the past two decades, banking compliance has been more than a check-the-box activity for financial services institutions. These days, it’s more important than ever. Compliance standards are adapting and evolving to meet the current challenges. Among these challenges are the ever-increasing threat of cyberattacks and data breaches and the looming presence of regulatory oversight. It’s enough to keep a bank or credit union CEO up at night. 

That’s why it’s essential for your financial institution to stay on top of the latest regulatory challenges to avoid stiff fines and to maintain goodwill among your valued customers. You must comply with regulations like those regarding anti-money laundering (AML) and “know your customer” (KYC). It’s not just U.S. banks and credit unions that must comply. This regulatory framework is being adopted by large corporations and internationally to combat the threat of terrorism and other criminal activities. 

According to the Bank Fines Report, the worldwide bank fines total was $14.31 billion in 2020. The U.S. accounted for $11.11 billion of that, with stiff penalties levied against 12 banks, including Goldman Sachs, Wells Fargo, and JP Morgan Chase. These are just the banks that paid the largest fines. Small fines under $600,000 are not included, so the actual number is much higher. Offenders pay big money and these numbers are expected to grow in 2021. 

The push toward digitalization is a good thing for customers, but it just complicates the problem. However, as John Marsano, president and CEO of Inheritance Advanced, says, “Digital banking is not a luxury, it is the absolute need of today’s economy. With everything shifting online, digital banking has provided people with the gateway to make their lives easier.” 

In the face of process automation, digitalization and mounting competitive pressures, the execution of strong banking compliance standards is a business imperative. Banks and credit unions have a legal, as well as an ethical, obligation to stem the flow of dirty money and to ensure that they know who they’re dealing with. 

6 Banking Compliance Challenges 

Stronger Laws: The New AMLA

Cybercrime, fraud, and corruption continue to threaten the national economy and financial systems worldwide. The passage of the National Defense Authorization Act last year includes the Anti-Money Laundering Act (AMLA) of 2020. This law amends the Bank Secrecy Act for the first time since the 9/11 terrorist attacks. The new and improved AMLA is intended to provide more tools and encourage greater proactivity in detecting and deterring money laundering and the financing of terrorism. Also, it ensures that non-federally insured credit unions are no longer exempt from AML regulations. 

The Existential Crisis: COVID-19

The pandemic is still with us. COVID-19 continues to present a threat with continued waves of outbreaks and disruptions to normal business operations. Banks and credit unions must reprioritize compliance activities to reflect the changing situation and the constraints on resources due to absenteeism. This includes allocating both time and resources to meet the challenge, which includes a greater reliance on digital channels and call centers. Marsano admits that digitalization, however helpful, is not without its challenges. “Bank…systems [are] being hacked into [and] critical information is being extracted…for misuse. Cybercrimes are at an all-time high.”

Employees Gone Remote

There are workforce issues like absenteeism and the Great Resignation. But the biggest concern may be working from home. That transition was not an easy one in the banking industry given the sensitive nature of the data. With cyberattacks on the rise and more regulatory oversight in the wings, flexible work from home policies may be difficult to sustain, even as the threat of additional and more virulent waves of the virus continues. Banks and credit unions have had to revise processes and procedures to accommodate remote work quickly. There’s more to be done to protect sensitive information across all channels.

Rapidly Changing Regulations

Training and communications are significant issues when it comes to banking compliance. These are required to ensure that the appropriate compliance protocols are maintained. The problem is that the laws and regulations are constantly changing. Financial institutions must provide the necessary processes, frameworks, and technologies to keep up with the shifting landscape. The changes come monthly, if not weekly.

Additional economic stimulus measures may further complicate regulatory and compliance issues. There was a spike in fraud during stimulus package rollouts and the virus has yet to run its course. Even with no stimulus checks on the horizon, other sophisticated fraudsters are waiting for an opportunity with the next natural disaster, local assistance programs, relief efforts, and more.

Regulators Are Watching

There are at least two reasons why regulatory and government scrutiny will continue to escalate. The first is that, as mentioned, fraud is on the rise. The second reason is that regulators are tasked with upholding the new AMLA provisions and all of the rapid changes in regulatory oversight. They took a huge bite out of bank profits in 2020. That was just the appetizer. The expectation from regulators is that financial institutions will make prudent use of the available technology to stay on top of changing laws and assess data virtually in real-time. This includes automated analytics, artificial intelligence, and machine learning. 

Actions Banks and Credit Unions Can Take

Build a Culture of Compliance

Compliance has a tough job to do. They are responsible for defining, communicating, and documenting compliance standards and policies. Further, they must define ethical conduct and help ensure that everyone understands the importance of compliant behaviors. Employees must be regularly trained and tested. There can be little tolerance for lapses and errors. Banks and credit unions must create an environment where compliance is built into their systems and processes. There’s more, however.

Leadership consultant to Fortune 500 companies Jeff Skipper says, “The culture of compliance starts with leadership. But it doesn’t stop there. It’s not only about vocal support. Compliance requires credibility. When leaders do not walk the talk, they destroy any chance of changing employee behavior. Executives must also support the enforcement of compliance protocols throughout their systems and processes.” 

Be Responsive to Changes in Compliance Requirements

Keep apprised of federal, state, and local changes and ensure that these changes are adequately communicated to each staff member. Banks and credit unions must have robust training programs in place as well as an implementation plan that works for all employees. Involve your compliance managers in every aspect of training and communications so that the policies and processes are understood and reinforced. Make sure employees understand the importance of new regulations. “Compliance requires a clear understanding of the purpose for the change,” says Skipper.

Revisit Your Risk and Compliance Measures

Regularly reevaluate your risk and compliance protocols and strengthen controls to prevent fraud and employee misconduct. A once-yearly risk assessment may no longer be sufficient. Update your policies as needed and continuously monitor your software and systems to ensure that your mitigation controls remain effective. Be sure to document everything so that you can continuously improve.

Leverage Technology

Your policies and procedures can be ironclad. But when financial institutions don’t have the right tools in place, it can be difficult to stop criminals who are becoming more inventive every day. Data analytics is key. Today’s technologies, such as AI and big data, can support robust risk management techniques. This gives banks and credit unions access to real-time information so that they can detect risks faster. There is no better support for the fast-paced decisions necessary to compete in the current banking environment. 

Lumin Digital

Even for many of the larger banks and credit unions, building a proprietary system is not a viable option. It requires resources and cutting-edge technologies that most institutions simply don’t have. Lumin Digital is redefining the way banking is done. With compliance and regulatory challenges looming larger than ever, Lumin Digital can help you remain compliant while providing your customers with the always available digital capabilities they’ve come to expect.  

Pamela Michaels Fay is a business, financial, technology, legal and lifestyle writer whose work is informed by over 20 years of strategy, leadership and organizational development consulting for Fortune 500 companies.


FinBold – The Bank Fines 2020 Report

Thomson Reuters – With a Stimulus Package Comes Spike in Fraud