How to build an effective and efficient compliance program at your financial institution

A version of this article was previously published in the August 2018 edition of the Callahan Credit Union CPA Guide.

As national administrations turn over, changes are often made that affect credit unions and their regulatory requirements. Under the Trump administration, for example, the Economic Growth, Regulatory Relief, and Consumer Protection Act signed into law on May 24, 2018, provided targeted regulatory relief to financial institutions.

Without an effective and efficient compliance department, regulatory changes such as these can cause unnecessary stress to a financial institution and its officers and board of directors. Below are items to consider when building a compliance program.

Set the tone at the top

Instilling a culture of compliance at a credit union begins with senior-level management and buy-in from the board of directors. Together, these two populations set the tone for an entire institution. This can be accomplished through three key steps:

• Ensuring compliance efforts are mentioned in all job descriptions and annual employee reviews
• Implementing and overseeing an effective compliance management system, which includes a compliance monitoring system and audit programs
• Appointing a qualified compliance officer to fit the risk of the credit union, establish a reporting structure, and deal with compliance resolutions across all departments

Build a strong compliance team

The size of an institution’s compliance team should directly correlate to the complexity and risk profile of the credit union. This may be influenced by an institution’s size, risk appetite, and the products and services offered.

Compliance teams are commonly viewed as cost centers, which often results in them being leanly staffed. However, viewing them instead as profit protectors may prove more beneficial because the expense of a civil money penalty will almost always greatly outweigh the expense of employing knowledgeable and professional staff as part of an effective compliance management system.

Organizations can also benefit from thinking of compliance teams as an investment to help mitigate an institution’s reputational risk. To help achieve this goal, build a team with diverse experience from different types of financial-service organizations, such as:

• Prior employment at institutions in a different asset-size class
• Prior employment at different institution types, such as commercial or consumer banks, broker-dealers, and credit-card
• Prior experience as a financial regulator or consultant

In addition to building a team with wide-ranging experience, encourage staff members to earn certifications, such as:

• Certified Regulatory Compliance Manager
• Certified Community Bank Compliance Officer
• Credit Union Compliance Expert

Financial regulators often prefer departments with certified staff members because it demonstrates a certain level of knowledge and proves the institution is committed to investing in training.

Additionally, encouraging staff to develop enhancements to compliance processes and then work with management and front-line staff to implement them can build a rapport and comfort with the compliance department that may pay dividends in the long run.

Implement an effective training program

Arguably, the most important aspect of a strong compliance program is a training program that’s required, customized, and ongoing for all employees. These trainings should cover applicable compliance policies, procedures, and regulations and include various quizzes to help assess knowledge retention.

As compliance laws and regulations are frequently updated and modified, it’s imperative staff stays up to date and knowledgeable on all upcoming changes. This can be accomplished in the following ways:

• Attending conferences
• Taking continuing-education classes
• Participating in local professional organizations
• Subscribing to regulatory-body newsletters

The proactive dissemination of pertinent information to all institutional departments — through training sessions or other avenues of communication — can help further ensure compliance efforts are kept up to date.

Additional resources

The following documents contain further information about building a regulatory compliance program:

• Federal Deposit Insurance Corporation Compliance Examination Handbook—Compliance Management System
• Bureau of Consumer Financial Protection Examination Procedures—Compliance Management Review
• Federal Reserve Community Bank Risk-Focused Consumer Compliance Supervision Program