Banks See Compliance Burden Rise to Unsustainable Heights

Financial institutions saw a 26% increase in the number of hours and employees required to meet regulatory compliance demands in the third quarter, the latest Banking Compliance Index (BCI) shows. 

More than 80 new regulatory changes added in the third quarter resulted in banks needing to devote 653 additional hours on average, or the equivalent of 1.86 full-time employees, to managing these demands. 

To meet those needs, the average institution spent an additional $45,264 on compliance last quarter, according to BCI, which uses data to measure the workload impact of regulatory compliance.  


“The number of regulatory changes last quarter reached the highest level we’ve seen since 1995. Even when the changes are minor in scope, they require time to identify, analyze and implement,” said Pam Perdue, executive vice president of regulatory insight at Continuity Control, which compiles and analyzes BCI data. 

The number of regulatory changes in each quarter has risen year over year, with just 65 implemented in third quarter 2013. In addition there were 66 regulatory changes in fourth quarter 2013 and first quarter 2014, and 75 in the second quarter of this year. 

“Upticks like these historically have forced banks to add headcount and divert time, money and staff from more profitable areas,” Perdue said. “Those traditional responses are unsustainable in 2014 and beyond.”

A rising demand for compliance professionals is also a major factor in compliance cost increases, she said. As a result of regulators placing greater scrutiny on banks’ compliance staffing, those positions are becoming more expensive — and harder to fill. 

“We’re seeing competition for top talent increase,” Perdue said. “Knowledgeable compliance and risk officers are essential for most banks today, but they can be hard to come by. As a result, salaries keep rising, bumping already high compliance costs to even higher levels.”

As regulations raise the bar on what compliance staffing and systems should look like, banks can no longer take a one-transaction-at-a-time approach. A compliance system, overseen by a board of directors and managed by compliance and risk officers, is essential, she said. 

But, “The data tell us that far too many institutions aren’t quite there yet.”

Written by Emily Study

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  • In 2010 I made the difficult decision to close my reverse mortgage company after 22 years due entirely to the tightening regulatory noose, the handwriting was on the wall, that the regulatory bureaucracy was out to seriously complicate and interfere in the mortgage industry. I was unwilling to expose all my hard earned financial gain to the inevitable fleecing that I saw coming nor was I willing to allow the bureaucracy to damage my good name and reputation.
    I chose instead to become an employee of a new and upcoming go getter reverse mortgage company that had the financial horsepower to afford, at least initially, the 3 full floors of compliance department that I knew was going to be necessary to remain a participant in this toxic and hostile environment. Two years later they folded their tent due in part to the burgeoning “cost of compliance” and the potential for “reputation damage”.
    The regulatory environment is even more toxic and uncertain today than it was then and in the absence of strong, assertive, and proactive industry leadership I don’t see how this situation can be ameliorated.
    But what do I know.

    • hecmvet,

      Since there were absolutely no reverse mortgages being commercially closed 22 years before 2010, your statement seems odd. As you say: “In 2010 I made the difficult decision to close my reverse mortgage company after 22 years,” i.e., sometime in 1988.

      No doubt you are a long-time reverse mortgage vet, your large company comment shows little recognition of how such companies have gone in and out of the industry since the days of endorsing the first HECM back late in the fiscal year ended September 30, 1990.

      About four decades ago, I worked for a significant California Savings and Loan. It was odd how that lender received clear direction from one set of regulators to expand its outreach to groups who had great difficulty qualifying for any mortgage while another set of regulators demanded higher lending standards. And this lender only operated in California. The group president who was an attorney was continually complaining that with so much conflict, S&Ls would come to an end in California if not everywhere within a decade. He was right.

      More restrictive and conflicting regulation is a natural result of having had one party control Congress and that same party sitting in the White House for the first two years of the new administration especially when that party believes that government is the preferred means to take care of the needs of the governed.

      So while I agree with your underlying position, I have a hard time with your numbers and concepts about the lender volatility in our marketplace.

      • I stand corrected in that I received my fha approval in november 1990 and originated my first hecms in early 1991.
        Please excuse me for not having any interest in your involvement in forward mortgage lending with a “major s&l in california” and you mustn’t assume I am unfamiliar with the lenders who have exited the hecm industry since 1990.( I delivered my loans to Wendover Funding in NC, then Senior Homeowners Funding in Florida and then Seattle Mortgage in Seattle and then Bank of America in Seattle, all of which were due to termination or sale or merger) If you somehow wish to believe that lenders are thriving under the regulatory burden and that no more of them will be exiting the space soon that is your prerogative. Time will tell.

      • hecmvet,

        It is your silly notion that moving to a lender with a large compliance department would positively change your future that I was mocking. Now you show how silly it was by telling us your pre-2010 experience with these same lenders and your lack of confidence in them by the end of 2009.

        Several of the large entities which left the industry are stable but large entity participation in our industry is not.

        What do you think happened to all S&Ls which all but cornered the California mortgage market back in the late 70s? As to industry lenders, I look forward to more turmoil, not less. It is not that the mortgage market has died in California, but the players have certainly changed. Applying this to the HECM industry, I do not believe it is going away but I do believe that most of the major players will change with time.

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