Looking back at 2019’s compliance changes

This year, community banks saw the full implementation of S.2155, which provided regulatory relief. While a quiet regulatory year, many community banks were busy improving their own compliance programs.

By Mary Thorson Wright

The regulatory machine stayed relatively quiet in 2019, but community banks kept busy implementing compliance legislation and guidance issued in previous years. Many also pursued enhancements to make their Compliance Management Systems (CMS) more efficient and effective.

The S.2155 state of play

In May 2018, Congress passed the Economic Growth, Regulatory Relief, and Consumer Protection Act, or S.2155, after years of ICBA and community banker advocacy. The law eases some financial rules to allow community banks to better serve their customers and communities. Most provisions of S.2155 became effective when it was signed into law, but many required agency rule-making, dropping them into the 2019 bucket.

An ICBA matrix (icba.org/S2155) tracks the implementation of S.2155 to help community banks navigate the changes and evaluate the impact of regulatory modifications. Some of the most significant compliance changes affect Home Mortgage Disclosure Act (HMDA) data collection and reporting, rules on mortgage lending and examination frequency. As of this writing, small business loan applications under Section 1071 of the Dodd-Frank Act still await Consumer Financial Protection Bureau (CFPB) rules for HMDA data collection and reporting, which may prove onerous and challenging for banks to implement.

Banks began collecting new HMDA data points on Jan. 1, 2018, and began reporting them this year. “In 2019, we continued to enhance HMDA controls to improve the accuracy of reporting,” says Richard A. Tripp, the senior vice president of compliance and risk officer at $1 billion-asset First Volunteer Bank in Chattanooga, Tenn., “and to keep close track of the bank’s open-end loans and the proposed changes to make sure the bank is ready to begin collecting and reporting open-end loans.”

CRA modernization

The Community Reinvestment Act (CRA) was enacted in 1977, and it has not been modernized to reflect changes in the financial services landscape or the changing needs of communities. The U.S. Department of the Treasury released recommendations to the federal bank regulatory agencies in April 2018, encouraging them to modernize the CRA, and the Office of the Comptroller of the Currency (OCC) issued an Advance Notice of Proposed Rulemaking (ANPR) about CRA modernization in June 2018.

Quick stat


The number of messages community bankers sent to Congress supporting the passage of S.2155

No Notice of Proposed Rulemaking has been issued, but ICBA expects one to be issued shortly. Areas of the CRA that are being looked at include assessment areas, activities that get CRA credit and the transparency of the CRA examination process. The prudential regulators continue to meet to try to come to a consensus so that a joint proposal may be issued, but no consensus has been reached. In the meantime, ICBA has strongly advocated to the OCC, as well as other agencies, to issue a proposal jointly, which would mean CRA rules would be consistent for community banks.

Borrower data

Relative to customer due diligence (CDD), HMDA and CRA, Tim Grooms, chief risk officer of $470 million-asset First State Bank in Winchester, Ohio, says the community bank was dedicated this year to analyzing how it captures information about borrowers and how it could improve that process. “We are paying particular attention to business-purpose loans with emphasis on the [Equal Credit Opportunity Act] data pending any formal rules,” he says.

The movement to legalize cannabis and associated products continues to challenge bank practices and internal controls. Grooms says First State Bank has taken a close look at CDD relative to the passage of medical cannabis in 2018 and commercial hemp legislation in Ohio in 2019–although it’s still waiting for USDA approval.

“The law was passed in 2018, and the state then built out the program,” Grooms says, “but in 2019, the businesses of cultivators, processors and dispensaries became operational and the activity ramped up.”

First State Bank has adjusted its account-opening process to make it more robust and efficient when gathering customer information.

Operational overhauls

Many community banks were focused on improving their processes and operations in 2019. Tammy Christianson, a compliance and Bank Secrecy Act (BSA) officer at $174 million-asset Viking Bank in Alexandria, Minn., sought ways to make its compliance program more efficient and effective. Prudential regulators and the Financial Crimes Enforcement Network (FinCEN) are also meeting to look at making BSA efficiencies.

With the help of the community bank’s external auditor, Christianson created and enhanced audit workpapers. “The new, more comprehensive workpapers have helped us stay on track with the compliance audit schedule, minimized duplication of effort and given us better feedback,” she says.

First Volunteer Bank was also committed to improving its compliance efforts. “We continue to enhance internal monitoring,” Tripp says. “We have a strong audit function, but we are improving our compliance risk assessment and review process to better identify compliance issues before they reach the level of, or are identified by, audit. We’ve also implemented procedures to review and accept private flood insurance when required and to handle private policies that do not meet the mandatory acceptance guidance.”

Compliance seems to be feast or famine. In either case, it requires ongoing attention and for community banks to shift their focus to effectively meet the industry’s challenges.

Mary Thorson Wright, a former Federal Reserve examiner, is a financial writer in Virginia.