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ComplianceDecember 14, 2020

Wolters Kluwer’s Annual Indicator Survey shows significant risk, compliance concerns for U.S. lenders

2020 Regulatory & Risk Management Indicator score increases by eight points

Regulatory compliance and risk concerns remain high in a number of key areas for U.S. banks and credit unions, according to the results of Wolters Kluwer’s 2020 Regulatory & Risk Management Indicator survey. This year’s survey, conducted by Wolters Kluwer’s Compliance Solutions business, generated a Main Indicator Score of 103, an eight-point increase over the 2019 score. This was influenced by concerns about managing regulatory change, mortgage-related regulations, and U.S. Coronavirus Aid, Relief, and Economic Security (CARES) Act requirements.

The COVID-19 pandemic weighed heavily on respondents’ minds: 86 percent view the pandemic as a significant or moderate factor in their organizations’ enterprise risk planning. Other areas of high concern include loan default risk (85 percent), business resilience and adaptability (79 percent), and recession fears (78 percent).

“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.”

Burniston will share insights on this year’s Indicator survey findings in a webinar, “Annual Survey Results Signal Direction for Banking Industry,” 2-3 p.m. EST Wednesday, Dec. 16, along with Wolters Kluwer Senior Specialized Consultant Elaine Duffus and Steven D’Alfonso, Research Director, IDC Financial Insights.

The calculation of the Main Indicator Score is based on several factors, including the number of new federal regulations, number of enforcement actions, and the total dollar amount of fines imposed on banks and credit unions over the past 12 months, together with additional information provided by survey respondents. The survey was conducted nationwide between August 4 and September 3, 2020 and generated 665 responses.

Of top obstacles cited in implementing effective compliance programs, 46 percent ranked manual compliance processes as a “7” or higher concern on a 10-point scale, and 41 percent cited inadequate staffing, both slight declines from 2019 levels. Perceptions of regulatory scrutiny of fair lending programs remained relatively unchanged, with 42 percent indicating that the level has remained the same.

Looking forward to 2021, top risk management priorities identified include cybersecurity (72 percent), credit risk (61 percent) and compliance risk (40 percent), with concerns about credit risk having jumped 16 percentage points from 2019’s survey.

Asked about prospects for reduced regulatory burden the next two years, respondents revealed greater pessimism, with 56 percent citing the likelihood of regulatory relief as either “somewhat unlikely” or “very unlikely” compared to 45 percent in 2019.

“The input from our survey respondents reflects another year of challenges for the U.S. banking industry as it navigates through the tumultuous impacts of the pandemic--and accompanying regulatory changes,” said Steven Meirink, Executive Vice President and General Manager for Wolters Kluwer Compliance Solutions. “The industry has weathered these challenges admirably, and we continue to support our clients in addressing the many regulatory and risk management issues they face as they work to serve their customers.”

Over the next 12 months, respondents’ most pressing regulatory compliance challenges include, in order of importance, keeping current with and managing regulatory changes, pandemic impacts, mortgage-related regulations, and employee staffing challenges. Respondents also expressed a high level of concern about their ability to comply with Bank Secrecy Act/Anti-Money Laundering requirements, fair lending laws and regulations, Current Expected Credit Losses (CECL) standards, and possible beneficial ownership rule changes.

Governance, Risk & Compliance is a division of Wolters Kluwer, which provides legal and banking professionals with solutions to help ensure compliance with ever-changing regulatory and legal obligations, manage risk, increase efficiency, and produce better business outcomes.
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