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Sometimes the surprise is that there are no other surprises. That realization might be dawning now on many financial institutions across the country, and their legal counsel, as 2014 draws to a close and the outlook for 2015 appears to be remarkably predictable.
Sure, pressures are mounting on those institutions to meet their compliance obligations, particularly with respect to the Bank Secrecy Act and anti-money-laundering regulations. At the same time, new consumer mortgage rules that took effect in 2014, combined with others coming into effect in late 2015, as well as renewed attention given to fair-lending laws, are causing headaches.
But there is also a growing acceptance of regulations affecting the industry—and, after a protracted period of upheaval stemming from Dodd-Frank and the creation of the Consumer Financial Protection Bureau, a reasonably clear sense of what needs to be done in the year ahead.
For one thing, regulators have clearly telegraphed where their sights will be set. A pronounced shift from rule-making to enforcement as a top priority gives financial institutions a clear picture of the key risks they need to manage—and some breathing room to focus on the tasks at hand—without the burden of additional regulations in the foreseeable future.
“Other than with the timed rollout of rules under Dodd-Frank—and we’re getting to the end of that process—I really don’t see a significant regulatory change occurring in the coming year, as long as there’s not a significant economic shock,” says Gary M. Deutsch, a Maryland-based author, educator and consultant with more than 40 years of experience in the banking industry.
“We’re into a new cycle now,” he adds. “And the key message is that organizations can no longer manage risk in silos. They have to manage all of the risks together and look at the combination of issues in play rather than any one issue versus another.”
Deutsch’s emphasis on managing risk across an enterprise echoes the view expressed by regulators who have become single-minded in their approach to how financial institutions should regard their products, services and activities. Increasingly, those regulators are urging institutions to develop a risk-conscious environment characterized by a deeper and more resilient culture of compliance.
While that message presents challenges to all banks, community and mid-sized institutions in particular may be most affected by it. As the National Risk Committee of the Office of the Comptroller of the Currency (OCC) noted in its Spring 2014 Semiannual Risk Perspective, community and mid-sized banks are already struggling to adapt their business models to respond to sluggish economic growth, a low interest rate environment and competitive pressures. They may also lack the human and financial resources required to fully meet their compliance requirements.
Nevertheless, the OCC has indicated that it will continue to pursue a supervisory strategy for smaller lending institutions that gives heightened attention to risks associated with strategic planning, corporate governance, stress testing, operations, cyber-threats, loan underwriting, interest rates, compliance and fair access.
What that means for risk managers and legal counsel with smaller financial institutions remains to be seen. But for now at least, expectations for 2015 seem well defined.
“If our economy remains stable or improves gradually, I don’t think that the regulatory burden will increase beyond what we already know is set out for the industry,” Deutsch concludes.
In other words, pay no attention to falling oil prices, another recession in Japan, trouble in the Eurozone, tensions over Ukraine and conflicts elsewhere that could spill into other regions, or any other factor that could threaten continued economic recovery in the United States.
Five years after the global financial crisis that left the U.S. banking industry almost unrecognizable in comparison with its former state, the idea of a largely surprise-free few years ahead is infinitely preferable.
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