Banks See Compliance Burden Rise to Unsustainable Heights

Financial institutions saw a 26% increase in the number of hours and employees required to meet regulatory compliance demands in the third quarter, the latest Banking Compliance Index (BCI) shows. 

More than 80 new regulatory changes added in the third quarter resulted in banks needing to devote 653 additional hours on average, or the equivalent of 1.86 full-time employees, to managing these demands. 

To meet those needs, the average institution spent an additional $45,264 on compliance last quarter, according to BCI, which uses data to measure the workload impact of regulatory compliance.  

“The number of regulatory changes last quarter reached the highest level we’ve seen since 1995. Even when the changes are minor in scope, they require time to identify, analyze and implement,” said Pam Perdue, executive vice president of regulatory insight at Continuity Control, which compiles and analyzes BCI data. 

The number of regulatory changes in each quarter has risen year over year, with just 65 implemented in third quarter 2013. In addition there were 66 regulatory changes in fourth quarter 2013 and first quarter 2014, and 75 in the second quarter of this year. 

“Upticks like these historically have forced banks to add headcount and divert time, money and staff from more profitable areas,” Perdue said. “Those traditional responses are unsustainable in 2014 and beyond.”

A rising demand for compliance professionals is also a major factor in compliance cost increases, she said. As a result of regulators placing greater scrutiny on banks’ compliance staffing, those positions are becoming more expensive — and harder to fill. 

“We’re seeing competition for top talent increase,” Perdue said. “Knowledgeable compliance and risk officers are essential for most banks today, but they can be hard to come by. As a result, salaries keep rising, bumping already high compliance costs to even higher levels.”

As regulations raise the bar on what compliance staffing and systems should look like, banks can no longer take a one-transaction-at-a-time approach. A compliance system, overseen by a board of directors and managed by compliance and risk officers, is essential, she said. 

But, “The data tell us that far too many institutions aren’t quite there yet.”

Written by Emily Study

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