Pandemic-Related Issues Dominate Regulatory and Risk Concerns

The regulatory and risk factors created by the COVID-19 pandemic were the primary concerns of bank and credit union offices polled in Wolters Kluwer’s 2020 Regulatory & Risk Management Indicator survey.

This year’s survey resulted in a Main Indicator Score of 103, an eight-point increase over the 2019 score. The year-over-year uptick was attributed to concerns focused on managing regulatory change, mortgage-related regulations, and U.S. Coronavirus Aid, Relief, and Economic Security (CARES) Act requirements. The criteria that form the calculation of the Main Indicator Score includes the number of new federal regulations, the number of enforcement actions and the total dollar amount of fines imposed on banks and credit unions over the past 12 months, along with additional information provided by survey respondents.

According to the survey, 86% of industry respondents viewed the pandemic as a “significant or moderate factor” in their organizations’ enterprise risk planning. Other areas that generated elevated concern levels were default risk (85%), business resilience and adaptability (79%), and recession fears (78%).

On a 10-point scale, respondents were asked to identify the main obstacles they faced in implementing effective compliance programs. The survey found 46% ranked manual compliance processes as a “7” or higher concern on a 10-point scale, while 41% cited inadequate staffing and 42% pointed to regulatory scrutiny of fair lending programs.

As for 2021, the top risk management priorities identified in the survey included cybersecurity (72%), credit risk (61%) and compliance risk (40%). Looking ahead to the prospects for reduced regulatory burden the next two years, 56% of respondents glumly stated the hope for regulatory relief was either “somewhat unlikely” or “very unlikely”—last year, the response was a 45% pessimism level.

“Relatively high levels of concern remain across a range of areas, reinforcing the fact that regulatory compliance and risk management issues continue to significantly challenge financial institutions,” said Timothy R. Burniston, Senior Advisor for Regulatory Strategy with Wolters Kluwer Compliance Solutions. “That said, respondents expressed their highest levels of confidence in the past four years regarding their organizations’ ability to manage risk across all business lines.”

The survey was conducted nationwide between August 4 and September 3 and generated 665 responses.