Community Banking: Maintaining Regulatory Compliance

Community bank spending on regulatory compliance continues to increase with the ever-growing number of regulations imposed on the financial service sector. This situation creates a significant challenge, requiring you to constantly evaluate and improve your operations — and not just to keep up with regulations, but also to satisfy rapidly changing consumer expectations.

A white paper by KPMG cites 10 key regulatory challenges for financial service firms:

• Disruption from geopolitical change
• Divergent state, federal, and global regulations
• Data protection (at all costs) and governance
• Operational resilience and planning for the unexpected
• Credit quality — learning from past credit cycles
• Easing of regulatory capital and liquidity requirements, without weakening risk management
• Maintaining agile and streamlined compliance
• Balancing innovation with the need to prevent financial crime
• Maintaining customer trust
• Acting ethically — doing the right thing no matter what

The road ahead

In particular, look for ongoing interest in areas such as financial crime surveillance (identifying bad actors), consumer compliance, scenario modeling, and enterprise risk management.

The response will include continued acceleration in the evolution and adoption of regulatory technology (RegTech). Regulators certainly recognize RegTech’s potential to reduce systemic risk and improve financial stability. And, while they’re unlikely to endorse specific technologies or common standards, expect them to allow firms to test, learn, and assess how RegTech is being used.

Regulators themselves will undoubtedly expand their own use of RegTech. For example, emerging technologies such as robotic process automation will enable agencies to process filings more efficiently, and artificial intelligence (AI) will help identify misconduct and insider activity.

Lastly, the face of RegTech will change dramatically in the coming years. While many of today’s RegTech startups offer narrowly focused solutions, community banks actually are seeking holistic, integrated solutions with advanced customer support. In response, expect to see a trend toward more consolidation and new partnerships among RegTech firms.

Questions to consider

RegTech offers new, highly efficient solutions to help community banks address risks and regulatory challenges more cost-effectively than ever, from speeding loan origination, to sharpening surveillance and the detection of illegal activity. To enable a clearer understanding of your current situation, as well as the benefits of RegTech and a pathway forward, I encourage you to ask yourself these questions:

• Have you evaluated RegTech options and which ones may be a good fit for your bank?
• Do you actively monitor the evolution of changes in RegTech solutions?
• Are your current systems up to meeting the more stringent requirements being implemented or proposed by regulators?
• Are you aware of how RegTech can benefit your business in other ways besides cutting costs and reducing risks?

In closing, I’d like to share this pertinent statement by U.S. RegTech leader David Choi: “RegTech isn’t just adding technology to existing processes. It can change the way you think about regulatory compliance. Once you understand its transformative potential, you may find ways to create a competitive advantage.”

Kevin Fread serves as CIO and CFO of Ironcore, Inc. He possesses more than 40 years of banking and technology experience in a variety of settings, including a community bank, a data services firm, and a global FinTech and payments company. Kevin works closely with Ironcore clients to assist with technology, integration, and strategic planning. You can reach him at kevin.fread@ironcore-inc.com.