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Do Regulatory Changes Mean More Compliance Expenses?

The recently passed Regulatory Relief Bill (S. 2155) has had a significant impact on the compliance expenses of financial institutions, according to Continuity’s quarterly Banking Compliance Index (BCI) released on Thursday.

In the second quarter, the BCI nearly doubled from Q1 with a score of 1.11, indicating that financial institutions needed more than one full-time employee to keep pace with regulatory changes. It also suggested that this uptick is more substantial than in the past years.

The BCI quantifies the incremental burden on financial institutions in keeping up with regulatory changes. This score doesn’t include the resources institutions are already dedicating to regulatory and compliance efforts.

According to the report, the regulatory relief bill added many pages of material that organizations had to “read, interpret, and decide on action forward.”

The bill contained over 50 separate regulatory changes impacting banks, credit unions and lenders, and according to the report, the BCI increase reinforces that any difference, whether adding or reducing regulations translates to extra work for financial institutions.

Regarding issuances and expenses, the report found that 61 issuances were delivered in Q2, up from 50 in Q1. Compliance costs increased from $10,776 in Q1 2018 to $19,114 in Q2 2018, and hours required to comply per institution went from 219 hours in Q1 2018 to 369 hours in Q2 2018, a 68-percent increase.

“We’re just starting to see the impact of the regulatory relief bill on banks, credit unions, and lenders,” said Donna Cameron, Director of Regulatory I/O at Continuity. “The bill added a significant number of pages and material that organizations had to read, interpret and decide on appropriate action forward. This increase in activity is only expected to continue as the agencies issue implementing regulations and guidance documents.”

The report indicated that the reinstatement of the Protecting Tenants at Foreclosure Act, by the regulatory relief bill effective June 23, 2018,  was a significant change during Q2 2018. Other notable provisions of the law were changes to the ways reciprocal deposits and High Volatility Commercial Real Estate are calculated and reported. These amendments were effective on the day the regulatory relief act was enacted, May 24, 2018.

With agencies having filled their vacant leadership positions, the report said, the regulatory uncertainty experienced by the industry in the first quarter had reduced. This movement had also added to the increased score of Q2.

Looking at the rest of the year, Cameron said that the industry could “expect to see a more active second half of the year in regards to regulatory activity and issuances.

“Agencies have made it clear that they plan to accelerate regulatory relief activity and provide guidance as soon as possible,” Cameron said. “Financial service organizations must proactively work with their regtech partners to help them automate compliance processes, interpret regulations and centralize efforts to prepare for the upcoming changes.”

About Author: Radhika Ojha

Radhika Ojha, Online Editor at the Five Star Institute, is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her masters degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha, also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Dallas, Texas. She can be reached at Radhika.Ojha@DSNews.com.

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