Banks have a lot to contend with by way of regulatory compliance, and there are more than a handful of federal and state regulators out there that those banks need to keep track of (and each with rules to abide by) in order to not run afoul of the law. A shortlist of the major ones that commercial banks are mainly concerned with:
There’s also the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), and the Office of Thrift Supervision (OTS) at the federal level, as well as other regulators at the state level - all of which banks must be in compliance with in order to operate. What does it mean for a bank to be in compliance with these regulators - especially when they have overlapping functions of oversight?
As highlighted in our post from last week, banks follow a top-down governance structure, with directives for subordinate departments within the bank handed down to them and strictly enforced. This is due to the stringency of established regulatory guardrails, put in place because of banks’ special access to government resources to prevent defaults, for if those were to happen, the economic consequences could be catastrophic. In fact, most of the regulators have been set up specifically to avoid that kind of situation from happening, usually in the aftermath of some such event - like the CFPB, mentioned above.
The CFPB was set up to better protect the average consumer in the event of an economic downturn. Its creation was catalyzed by the housing market bubble burst of 2008 and resulting financial crisis, in which many people lost their homes. As their website states, it “makes sure banks, lenders, and other financial companies treat you fairly.” They have also taken steps to be a “21st Century” regulatory agency, employing the use of new technologies to better take in and monitor customer complaints as they relate to challenges surrounding financial products and services.
No matter anyone’s views on regulatory agencies, it behooves those who are charged with ensuring that banks are in compliance with them to come up with agile and responsive ways to make sure they are. For instance, if the CFPB’s threat to hold banks accountable to consumers by monitoring on and responding to complaints holds any water, it would make sense for the banks to prevent those complaints from occurring in the first place. One way to do that is through getting better visibility across the organization.
Better visibility starts with looking beyond the siloed, top-down structure of banks. While this is antithetical to traditional thinking about how compliance should be enforced, it is essential to that enforcement in the 21st century. Only when executives have a crystal clear view into what is happening in every department of their organization can they respond to, and prevent, complaints from arising. This means employing technology tools that will give them that visibility - which is the topic of next week’s blog post.