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3 Best Practices For Regulatory Compliance

Best practices have emerged that financial institutions can use not only to meet new regulatory standards, but to improve business processes and align strategies.

Since the financial crisis, banks have had to navigate a more complex regulatory environment than ever before. The sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act was designed to prevent another such collapse, and in the process added many more compliance statutes banks have had to meet. Additionally, in 2009 the Federal Reserve began issuing its Supervisory Capital Assessment Program, and the subsequent annual Comprehensive Capital Assessment Review tests, commonly known as “stress tests.” The stress tests — the aim of which is for banks to show they have sufficient capital to continue to lend to households and businesses even under severely adverse conditions — were initially for the nation’s largest 19 banks, but have since been opened up to any bank with assets of more than $10 billion. Throw in international regulatory guidelines such as the Basel III accord, and regulatory compliance has never been a more daunting task than it is for banks right now.

This increased regulatory burden has necessitated increased investment, both in technology to handle the greater compliance workload and in personnel in these areas. But over the past several years some best practices have emerged, and banks have learned some valuable lessons. Here are three ways banks can survive and thrive in the new regulatory environment, and how they might continue to do so going forward.

Invest In Technology That Multitasks

It’s often painted as an either-or scenario for banks: Investing in compliance technology means fewer resources are devoted to innovation and growing the business. But it doesn’t always have to be that way. Through smart investment, BancorpSouth, a bank holding company with $12.9 billion in total assets based in Tupelo, Miss., has been able to meet new compliance standards while also improving business processes.

“It can be a challenge trying to check all the regulatory compliance boxes while also developing systems that allow you to evaluate strategic initiatives,” acknowledges Ty Lambert, first VP for BancorpSouth.

[Related: The New Year in Regulation and ComplianceSlideshow Article]

But BancorpSouth has been doing just that. The key, says Lambert, is using technology that serves multiple functions, including regulatory compliance. For example, the bank has spent money and dedicated internal resources to ramping up its risk management practices to meet new regulatory standards, but at the same time these new risk management capabilities also can be used to inform some of the bank’s other initiatives, whether making capital deployment decisions or looking at potential M&A opportunities, Lambert notes.

Also, as an institution in the $10 billion- to $50 billion-asset range, BancorpSouth was subjected to the Fed stress tests for the first time this past year. The holding company partnered with SunGard to build a new stress-testing platform using SunGard’s Ambit Risk and Performance Management suite. The platform is designed to help banks generate a complete picture of their balance sheets to aid capital allocation. Lambert says the suite not only will help meet stress-testing requirements, but also provide a long-term framework to fulfill wider risk management and regulatory objectives and help to turn the practice of compliance into a competitive advantage.

“Having this in place will really help us to evaluate our capital and allow the board to make better business decisions; it’s not just about the stress tests,” says Lambert.

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

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Scott Whitney
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Scott Whitney,
User Rank: Apprentice
1/22/2014 | 5:36:15 PM
re: 3 Best Practices For Regulatory Compliance
IGd recommend two more best practices. First of all G centralize policies for communications G your policy and interpretation of rules and regs for email should be the same as for social media, which should be the same as collaboration platforms. Communication is communication. DonGt treat them differently, unless youGre using them differently. Secondly look to compliance for multiple communications channels to reduce costs. DonGt look at different communications as silos. Electronic communications can all be handled from a regulatory compliance perspective within the same platform, separate them out, and they cost you more, look at consolidating how you deal with them, how you review and how you discover, put it all in one place and youGll reduce time, effort and cost.
babugb
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babugb,
User Rank: Apprentice
1/22/2014 | 10:00:18 AM
re: 3 Best Practices For Regulatory Compliance
Banks should start looking at the compliance & regulation as an opportunity to invest in technology & processes rather than considering them as threat for their growth & profit. They have to think out of box to exploit the investment made on the regulatory programs for increasing their top line & bottom line.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
1/16/2014 | 1:07:16 PM
re: 3 Best Practices For Regulatory Compliance
Smart data governance is something that is needed for almost every business objective. Most companies have initiatives to improve data governance, but we still hear the stories about how each project struggles.

Are financial institutions doing a better job of managing data so it can be used for a variety of projects, rather than just gather/manipulate/use data for one-off initiatives (such as an MRA, or other regulatory request)?
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
1/15/2014 | 10:01:51 PM
re: 3 Best Practices For Regulatory Compliance
With all of the attention and resources being poured into compliance, it's reasonable for banks be working on all of these aspects at once.
dmwallacenc
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dmwallacenc,
User Rank: Apprentice
1/15/2014 | 7:12:01 PM
re: 3 Best Practices For Regulatory Compliance
I agree that culture changes are difficult at any institution, especially large global institutions. The point about the technology and process changes related to existing silos which often move so slow is that there are large investments needed up front with the benefits being gainedfurther out in time. This causes disincentives among management to make the investments unless a crisis is occuring now (like a MRA being received). My comments in the article referencing data management and governance solutions are a way to "bridge the gap" while the hard work of application modernization to brake down the siloes is also underway.
Byurcan
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Byurcan,
User Rank: Author
1/14/2014 | 5:57:19 PM
re: 3 Best Practices For Regulatory Compliance
True, it is as much (more) of a culture issue than a technology/integration issue. Culture changes generally move slowly, especially at larger institutions.
KBurger
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KBurger,
User Rank: Author
1/13/2014 | 9:15:36 PM
re: 3 Best Practices For Regulatory Compliance
RE: SAS's Wallace's points regarding the need for achieving alignment among the different functions -- compliance, risk management, IT, etc. -- I think it is possibly more difficult than some of the actual tech implementations or modeling practices. That kind of alignment, collaboration & info sharing has so much to do with culture, leadership, communications -- although there is recognition those things are important (if not essential), it is really hard to make people change how they interact & do businesses. So that is probably an underestimated aspect of the compliance process, as well a the potential to leverage compliance investments in other areas.
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