June 10, 2011

 
Transforming Compliance: Why you have to do it—and the tools to do it with

 

 

By Jo Ann Barefoot and Lyn Farrell, co-chairman and managing director, respectively, at Treliant Risk Advisors, and authors of the June ABA BJ cover story, “Don’t Get Lost In UDAAP.” 

 

 

Banks are increasingly finding themselves in serious regulatory trouble, despite having both competent compliance officers and compliance programs that, by traditional measures, are well-designed and well-staffed.

In most cases, the criticism centers on regulations involving subjective standards.

QuickLinks: Transformation Tools A Mini-Case Four boxes to fairness Product Fairness Checklist Compliance Transformation Checkup Getting Started

Examiners are now challenging practices and business patterns that are not technically illegal and that raised no questions in prior years--particularly on fair lending; the Community Reinvestment Act; and unfair, deceptive, and abusive acts and practices (UDAAP). Many of these situations involve enforcement actions that are not yet public. Most require, among other things, that the banks expand and restructure their compliance programs.

This escalating enforcement is revealing flaws in the design of the traditional compliance program, which has always been built mainly to manage technical rules. Such programs are ill-equipped to handle the current pace and scale of regulatory change, and especially to meet the emerging mandate to assure “fairness,” as well as compliance. Those challenges will require banks to move to a new level, maintaining current strengths while also transforming their compliance programs to become far more strategic, integrated, and leveraged.

The compliance transformation has seven critical components. Compliance must become strategic and proactive; integrated into the business line; properly incentivized as part of the bank’s human resources approach; made more efficient; become focused on results; led by a new kind of compliance leadership; and culturally strong, as part of an industry transformation in the role of compliance. These concepts are fully explained in our June 2011 ABA Banking Journal cover story, “Don’t get lost in UDAAP: How to find your way as regulators shift focus to Unfair Deceptive and Abusive Acts and Practices.” 

 

 

Read the cover story in the ABA BJ Digital Magazine   

 
Read the cover story on www.ababj.com

 

 

Transformation Tools

The following five online tools supplement the June cover story:

 

• A Mini-Case: Tracing a sample product through the decision-making process at a “transformed” institution
• Four boxes to fairness: A simple way for viewing customer fairness versus bank profits
• Product Fairness Checklist: Criteria for screening a new product or service for potential UDAAP concerns
• Compliance Transformation Checkup: Checklist for strengthening the compliance program
• Getting Started: How to launch a compliance transformation project

 

[This report was posted on June 10, 2011 on the website of ABA Banking Journal, www.ababj.com, and is copyright 2011 by the American Bankers Association.]   

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