As compliance professionals kick off the new year, it's a perfect time to consider some of the major trends that are changing the industry. In this post, you'll learn five of them, and what they might mean for your bank, mortgage company, or credit union.
It's the second day of 2019, and already compliance professionals like you are back in their offices, working to make sure this year is as profitable and compliant as possible. As you get back into the swing of things, now is a great time to take a look at some of the factors shaping up to make this year another challenging, yet exciting, one.
Here are the five factors that will have the biggest impact on banking compliance in 2019.
We narrowed it down to these five by reviewing the results from our recent Compliance Pulse survey (get the report here), regulatory guidance, the news, and even some word-of-mouth from industry experts. Let's jump right in:
1. HMDA Remains Challenging, Yet New Public HMDA Data Will Deliver Insights.
According to the recent Compliance Pulse survey, 17% of respondents listed HMDA as their top priority for 2019. It sometimes seems like the updates are never-ending!
In early December, the CFPB released yet another change to the HMDA rule, this time amending what loan-level data will be publicly disclosed. In a nutshell, they will be excluding or modifying some data fields and freeform text responses.
Even as the bureau is limiting the data that will be public, this is the first year that the extended HMDA data will be available to the public. As a result, we're still anticipating that the additional HMDA Plus data will deliver some great insights.
We're also anticipating that it's going to attract some attention from the media.Most of those investigative Redlining stories that have been published over the last few years use HMDA data to support their claims. We expect that the public HMDA data release will result in additional scrutiny.
Related: What Is A Compliance Management System And Why Your FI Needs One
2. State-Level Regulators and Examiners May Take a More Prominent Role.
It appears that, in the vacuum left by some of the federal regulators' changing priorities, state regulators are beginning to take a more prominent role in certain areas of compliance. Some of those areas include Fair Lending, banking cannabis, and FinTech.
In fact, the OCC's Comptroller of the Currency, Joseph Otting, wrote an editorial for American Banker about state regulatory agencies and their approach to FinTech.
Some states, like New York, have a history of scrutinizing the banking institutions. Other cities and states are embracing an approach that seems new, at least to outside observers.
For banks, it simply means that easing federal pressure may not deliver as much relief as desired. Given the fact that respondents rated the current approach to regulation at just a three out of 10, your hopes probably weren't too high.
"I think the overall framework of the banking regulations makes sense, but there are areas of duplication and some specific areas where regulation is too tight or too loose. Regulations should be better tailored to risk profiles."
- Compliance Officer at $1.5 billion bank
3. Market Consolidation Will Continue, and May Even Escalate.
The past few years have seen a lot of market consolidation as banks merged or were acquired, and we are expecting that trend to continue in 2019. It may even increase!
A number of factors may drive additional M&A activities: bank profits spiked in 2018 to record highs, regulatory relaxation (particularly scrutiny on larger banks), and competition from FinTech companies. These FinTech companies are even exploring moving into banking; Square just filed for its own banking license!
For bankers, a merger or acquisition presents real growth opportunities, and compliance challenges. That said, only half of respondents said the compliance department was involved in M&A planning. As we wrote about last year, mergers and acquisitions mean a changing branch network. This can result in costly CRA, Redlining, and Fair Lending risk exposure.
Bottom line: mergers and acquisitions are a great way to grow, but be conscientious of your risks.
[Read Also: 5 Ways Intelligent Branch Planning Will Save Your Bank Millions!]
4. CRA Modernization is Likely to Become a Reality
The OCC continues to move forward on CRA modernization, supported (though not followed) by other federal agencies. There is widespread bipartisan support for such a update, while banks and consumers are both generally in support of the idea.
Given all of this momentum, we are anticipating that we will gain clarity on what an updated Community Reinvestment Act may actually look like in 2019. This may take the shape of a proposed rule, or it may be as simple as additional guidance and public statements from the officials working behind the scenes.
We're awaiting further news, and look forward to keeping you up-to-speed on everything CRA.
5. Democrats in Washington to Focus on Banking Regulations
Even though the Republicans control the Senate and the Presidency, the Democrats are making a lot of noise around banking regulation. As election season heats up, it looks like banking will be one of the focal points. This is especially true now that Elizabeth Warren, the Senator who built the CFPB, has announced her candidacy.
Warren isn't the only one focused on banking; Representative Maxine Waters has also indicated that she will be focused on banking compliance. Last year, she said "make no mistake, come January, in this committee the days of this committee weakening regulations and putting our economy once again at risk of another financial crisis will come to an end."
Simultaneously, Republican leaders will be looking to finalize key deals and updates before everyone's focus shifts to the election. This political magnifying glass on banking may turn up the heat on compliance professionals. How much, exactly, remains to be seen.
Ncontracts Viewpoint: As we move into the first quarter of 2019, we are working hard to make sure that you have the support you need to successfully manage your compliance requirements. Know that we are here to help with your consumer compliance and growth strategy needs.
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