Leverage Technology to Ease the Compliance Burden

Credit Union Magazine
May 27, 2010 | COMMENTS

Compliance has always been a tedious process involving reading and research. In the “good old days,” disclosures were reviewed word by word, and annual percentage rates were determined on a hand-held calculator.

With the advent of the USA PATRIOT Act, a flood of regulatory changes and guidance hit financial institutions. In an effort to watch the bottom line, management has turned its focus to technology as an efficient, cost-effective means of meeting this ever-increasing obligation.

It's no real surprise that regulatory compliance is becoming increasingly difficult and complex. Not only has the Bank Secrecy Act (BSA) added numerous rules requiring extensive staff training, it exacts severe penalties for failure to maintain compliance.

In addition, we've seen guidance in the forms of FACT Act Red Flags and vendor due diligence put into place to prevent losses due to identity theft, fraud, and poor vendor selection. To maintain compliance in each of these areas, institutions share the need for a comprehensive risk assessment.

Risk assessments require in-depth data with regard to membership, location, deposit and lending history, as well as known criminal (or terrorist) activity within the areas of operation. When processed, this information provides a risk profile allowing the institution to determine the means of mitigating identified risks.

Unfortunately, many working hours may be required to extract and identify the necessary information. Alternatively, technology can address many of these challenges and have an important impact on cost.

Software programs can take the place of one or more individuals for only a portion of the equivalent salary costs. Software also can extract information far quicker than a manual approach, and it provides for diversity in analyzing data through a variety of reports.

Many of these reports reflect necessary regulatory data, which examiners can then view in an expedient format.

The Internet contains a wide variety of free technology for use by financial institutions. Credit unions also may view electronic versions of regulations by visiting federal agency Web sites, including the National Credit Union Administration, Federal Reserve, and Internal Revenue Service.

Trade association Web sites and those of the state leagues provide access to free technology, or they can route people to potential providers. Many vendors offer “free” technology (including forms and information) in order to market other products.

Beyond the use of free technology, many institutions find that their needs are specific and more sophisticated in certain areas, and they can afford to purchase technology to address these needs.

To address BSA requirements, for example, numerous commercial vendors offer programs that will identify areas of risk, assign weighted risk ratings to individual members/customers, and provide reports of questionable cash transactions.

FACT Act Red Flags are being addressed through programs that highlight potential fraud circumstances based on selected criteria, in addition to providing reports of circumstances that may point to identity theft.

In some cases, technology providers are bundling both BSA and FACT Act criteria to produce a single, detailed report.

Remember, however, that technology comes with a caveat: Understand your role in making the technology work.

Many financial institutions have purchased new technology (software in particular) that promises great things. After purchasing the software, however, the institution may discover that volumes of data must be entered to make the program useful. Many of these programs sit idle until something more user friendly comes along.

In short, when using any form of technology, make sure you understand:

• Its capabilities and limitations;
• The commitment of time and/or resources by management and staff to get the program up and running; and
• Program flexibility regarding regulatory changes, as well as additional costs that may result from these changes.

The author, Steve Gibbs, is assistant vice president of the Texas Credit Union League's Shared Compliance Resources. Contact him at 800-442-5762. Reprinted with permission from www.creditunionmagazine.com.