Tech Talk

The future of compliance automation is here, almost

By Elizabeth Judd

Imagine a single technology solution that could digest all new banking regulations and then automatically apply them, sending out reminders and tracking the various compliance items upon which a community bank will be examined. While most community bankers would consider this science fiction or even fantasy, a handful of technology providers are saying that programs like this are nonfiction; they exist today and are ready to tackle new regulations as they come down the pike.

Jim Trautwein, senior director at Cornerstone Advisors Inc., a technology advisory firm in Scottsdale, Ariz., points out that the vast majority of community banks are wrestling with most regulatory challenges on their own. “Community banks are tracking compliance in a very elementary fashion with Excel spreadsheets and Word documents,” he says. “It’s not really a sophisticated system.”

The fact that most community banks have skated along with in-house systems and technology solutions that only address parts of the problem comes as no surprise, says Andy Greenawalt, founder and CEO of Continuity Control, which has launched an online compliance solution designed to address this problem. He compares the situation to a driver with snow or mud stuck in his or her wheels throwing off the tire’s balance; all seems well until the driver speeds up, and then the car begins to vibrate and seems on the verge of collapse.

“Bankers had a system that worked for a slowly changing environment that was lightly scrutinized,” he says. But with mounting regulations and rapid changes, he continues, “the system simply broke.”

Although many compliance solutions address pieces of the regulatory puzzle, the real problem is that they don’t tackle the problem from a high enough altitude. What’s critical, says Greenawalt, is managing the entire regulatory lifecycle.

From documents to data

Many community banks are still completing compliance tasks the old-fashioned way—by working with a variety of documents on their PCs, software vendors say. Unfortunately, these documents are too static to adapt when the environment changes. “Documents are excellent places for information to go to die,” Greenawalt says, noting that bankers need to organize their information into data or items that can be searched and rearranged when a new regulatory model emerges.

“You need to get your information well organized so as regulatory change comes out, you can easily find the touch points in the organization that are impacted by this new regulation,” he explains.

To illustrate the magnitude of the problem, Greenawalt points out that “there are north of 10,000 individual citations within the Code of Federal Regulations that apply to banking.” He explains that the typical community bank is being examined annually in a number of areas: consumer compliance, safety and soundness, technology, and the Bank Secrecy Act and the Community Reinvestment Act among them.

Worse yet, compliance is a moving target. He estimates that in a quiet year, there will be 150 new citations, while in a busy year, there may be as many as 300.

Continuity Control’s cloud-based solution is not the only one that tackles this mountain of new regulations out there. Most purveyors of loan origination software or online risk management programs share the same goal.

Wolters Kluwer Financial Services in Minneapolis, Minn., for instance, offers a single-point deposit and loan origination system, called ComplianceOne. Lisa Fraga, vice president and general manager of banking solutions, points out that the loan origination systems commonly in use directly address compliance, especially as the new Truth in Lending Act/RESPA regulations are poised to go into effect. The Good Faith Estimate and the HUD Settlement Statement are two of the most field-intensive documents in a mortgage loan package, she says. “All the fields are changing. In addition, documenting Truth in Lending loan specific payment terms to increase borrow understanding brings new challenges.”

Finding answers

Wolters Kluwer has a large team of compliance analysts and lawyers poring over new regulations to help community banks be prepared. Its developers confront new regulations well before they hit because there’s considerable training and education involved in getting up to speed. For example, Fraga emphasizes that although community banks are concerned over the substantial impact of the new TILA/RESPA requirements, Wolters Kluwer is updating its software system to help ensure its client banks can address all changes.

Continuity Control takes a slightly different approach with its subscription service. Greenawalt has reverse-engineered the regulatory universe, placing all the different components into a single system for a model bank. When community bankers use that model, they can see what items are there and what are missing.

To illustrate how his company’s system works, Greenawalt says that one community banking client has a secretary who sent out requests for information on community service for CRA and spent an estimated 300 hours a year copying and pasting facts into an Excel spreadsheet. With Continuity Control’s cloud-based system, everyone in the organization gets a to-do list through an online wizard that then asks the proper follow-up questions. In total, the bank’s CRA compliance process went from around 300 hours to just 20, he says.

When asked why so few community banks are investing in holistic technology solutions for compliance, Trautwein points out that cost is an issue and so is the piecemeal aspect of most existing solutions. He believes that community bankers are awaiting a truly comprehensive answer.

“A product would catch on if it were priced right and if it could clearly show where it keeps the bankers out of the doghouse from a compliance and regulatory standpoint,” he says. “But if it’s just another tracking tool, the banks can get that with something homegrown.”

Concluding, Greenawalt emphasizes that compliance software systems continue to improve and advance, but so must the way community bankers view technology and compliance. He adds: “If you keep trying to wrestle with this problem as you’ve done in the past, you end up losing.”

Elizabeth Judd is a writer in Rockville, Md.