Community financial institutions are putting more of their resources toward compliance, according to the 2014 Third Quarter Banking Compliance Index (BCI), released on Tuesday by Connecticut-based compliance management systems provider Continuity Control.
The latest BCI indicated that the number of hours and employees required of community financial institutions to meet regulatory compliance demands jumped by 26 percent in the third quarter. Research revealed that in order to comply with the 82 regulatory changes added in Q3, 653 additional hours were required of the average community bank. The number of hours equates to 1.86 full-time employees, requiring the institutions to spend $45,264 on average during Q3.
"Anecdotally, most bankers say they felt like the third quarter was a light one in terms of compliance, but the data shows otherwise," said Pam Perdue, executive vice president of regulatory insight at Continuity Control. "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. Upticks like these historically have forced banks to add headcount and divert time, money and staff from more profitable areas. Those traditional responses are unsustainable in 2014 and beyond."
Perdue said that a major factor in the compliance cost increase was the rising demand for compliance professionals brought on by increased scrutiny of compliance staffing from regulators, making it tougher and more expensive for banks to fill these positions.
"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."
There are ways to help keep the cost of compliance from spinning out of control, according to Perdue.
"Technology can help rein in compliance-related staffing costs," Perdue said, "as well as demonstrate to regulators that a proper compliance management system is in place to keep up with the growing regulatory volume. Enforcement action levels remained high in the third quarter, with an average of seven items per action – up from just five items in the previous quarter."