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Reg and risk burdens up year over year

New mortgage rules, IT risk, fair lending pose increased pressures

Reg and risk burdens up year over year

U.S. financial institutions are carrying a much heavier regulatory and risk management burden than they were a year ago, according to the results of the latest Regulatory and Risk Management Indicator by Wolters Kluwer Financial Services.

The indicator began with a baseline score of 100 in January 2013 when Wolters Kluwer Financial Services surveyed nearly 400 U.S. banks and credit unions. It rose to a score of 121 in January 2014 when the company surveyed approximately the same number of financial institutions.

Driving the increased score were mounting pressures expressed by financial institutions in all seven of the indicator's compliance and risk management factor categories as well as more than $8 billion in new regulatory fines and settlements at the federal level in the last three months of 2013.

To calculate its Regulatory & Risk Management Indicator, Wolters Kluwer Financial Services uses ten main factors, seven of which revolve around direct input from financial institutions on their top compliance and risk management concerns and three of which are based on regulatory data the company compiles.

In particular, financial institutions participating in the indicator demonstrated a significantly heightened concern over the Consumer Financial Protection Bureau's recently finalized Qualified Mortgage, Qualified Residential Mortgage, and mortgage servicing requirements and guidelines. In fact, only a third of respondents said they planned to offer nonQM home loans following the implementation of the CFPB's new rules.

On the risk management front, banks and credit unions remain most concerned with regulatory risk and fair lending risk more specifically. Other major risk management concerns included asset and liability management, IT risk, and fraud.

"The latest Indicator results verify a growing number of U.S. banks and credit unions are more proactively addressing regulatory change and potential risks," says Timothy Burniston, vice president and senior director of Wolters Kluwer Financial Services' Risk & Compliance Consulting Practice.

"Not only are these institutions more concerned about compliance and risk management, but they're also devoting additional time and resources to addressing these areas to head off potential issues, and facilitate growth and performance objectives."

John Ginovsky

John Ginovsky is a contributing editor of ABA Banking Journal and editor of the publication’s TechTopics e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each TechTopics issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and was managing editor and staff reporter for ABA’s Bankers News. Email him at jginovsky@sbpub.com.

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