4 ways to conquer compliance challenges

Illustration by Elwood Madison/Stocksy

For community banks, regulatory burdens and compliance costs are constant challenges. But by taking steps including building a culture of compliance, they’re challenges that can be met.

By Mary Thorson-Wright


With few exceptions, community banks face many of the same challenges of comprehensive compliance management as do resource-laden megabanks and tax-advantaged credit unions. The resources community banks use to meet these challenges—human, electronic or otherwise—add up.

Nearly two-thirds of community bank executives plan to maintain their compliance budgets this year, and another 31.4% say their compliance budgets will go up 5% or more, according to Independent Banker’s Community Bank CEO Outlook survey.

Of course, community banks want to limit these costs as much as possible so they can focus on serving their communities, upholding regulatory and industry standards, and achieving their business goals.

So, when it comes to compliance challenges, how can community banks mitigate—or conquer—them?

1. Maintain a culture of compliance

For compliance to shine, community banks must clearly and consistently communicate compliance responsibilities across their institutions. They should treat compliance as part of everyone’s job, including third-party service providers.

The importance of compliance must travel from the top-down to engage the entire team to work together. The compliance and legal departments do their part by disseminating information, answering questions and providing critical oversight, but successful community bank managers know that compliance and legal staff need bankwide support. Community banks should operate under the assumption that compliance isn’t an afterthought, a necessary evil or contrary to business goals.

2. Recruit compliance talent

FDIC-insured community bank charters represented 91% of insured institutions as of Q3 2020, according to the FDIC. Of those 5,000-plus financial institutions, 2,416 were based in counties that are predominantly rural, with populations of fewer than 50,000 residents.

While community banks headquartered or with branches in less populated, more rural communities have plenty of benefits to attract employees—an often higher quality of life and lower cost of living—there may naturally be a smaller talent pool or pipeline for recruiting well-qualified compliance staff, making recruitment efforts and training critical.

Community banks, regardless of location, can rely on various training tools, including live virtual events and other resources offered by ICBA’s Community Banker University, to nurture homegrown talent and foster professional development. While training is a valuable tool for employee development, some compliance challenges can be more efficiently met by outsourcing to third-party vendors or firms with specific skill sets. Outsourced services, which are, of course, always subject to bank oversight, can offer cost advantages and increased efficiency over organic methods and can bring special expertise, capabilities and independence that would not otherwise be possible or cost-effective. Community banks routinely take advantage of outsourced compliance services, including training, reviews and even outsourced compliance management, to augment their in-house processes.

3. Follow compliance guidelines

About 16% of community bank respondents to the CSBS National Survey cited complying with regulations as a top business challenge in 2019. The expression, “We have done so much with so little for so long, that now we can do anything with nothing,” emerged as a motto for the Tactical Air Command of the U.S. Air Force in 1960. It might also describe community bank compliance resourcefulness.

ICBA points to the attributes that set community banks apart from other financial institutions: a local focus, relationship banking, innovation, lending leadership for small businesses, timely decision-making and community engagement. Despite recent legislation to bring regulatory relief, community banks face a disproportionate regulatory compliance, recordkeeping and reporting burden that challenges their ability to support their customers, serve their communities and contribute to local economies. The high cost of noncompliance in man-hours, reputation and real dollars has been shown time and again.

To build a robust compliance management system, or CMS, community banks should implement the basic pillars recommended by federal bank regulators: board and management oversight, including designating the compliance officer or compliance committee; a formal, written compliance program, including policies, procedures, training, monitoring and a consumer complaint response process; and independent compliance audit.

4. Use technology to stay competitive

The world is evolving rapidly toward more high-tech banking services that go far beyond simple online and mobile banking. Competition for business is also one of the three most pressing challenges identified by community banks, and the arena of competitors has expanded to include retail, technology and telecommunications companies.

While at one time community banks relied mainly on personal knowledge of their communities and local networking to acquire customers, consumers in both rural and urban areas are looking for more sophisticated electronic banking conveniences. These innovations run the gamut of electronic and digital products and services, from online banking and mobile banking to fraud alerts, biometric login and electronic card management.

Community banks are increasingly embracing technology to keep up with these demands, according to a national survey and case study of community banks conducted by the Conference of State Bank Supervisors (CSBS).

No matter what compliance hurdles community banks face, they must continue to take proactive steps to meet them. Doing so will help community banks further their mission of promoting greater access to financial services and economic opportunity throughout the communities they serve.


Mary Thorson-Wright is a writer in Virginia.

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