I begin this article with a preface: I’m an attorney, not an accountant, and some people don’t consider lawyers to be good with numbers.
But as a regulatory compliance attorney, I know that credit unions can’t ignore the cost of compliance and the need to budget for it. Credit unions face significant compliance challenges in the future. And to meet those challenges, there must be money allocated for compliance. That allocation should start with the 2012 budget.
In calculating the cost of compliance, evaluate and consider both internal and external costs. When regulators issue new or amended rules, expect costs associated with making processing changes through your data processor and debit/credit card processors. Also expect costs for purchasing new forms or amending existing ones.
As for external costs, 92% of credit unions spent money on external compliance resources, according to a recent CUNA survey. These external costs could include compliance software (i.e., Bank Secrecy Act monitoring software), training, compliance reviews/audits, or compliance consulting services.
The survey also found that 52% of credit unions responding had a designated staff person for compliance issues, although that doesn’t necessarily correlate to having a compliance officer solely dedicated to compliance. Regardless, having a compliance officer is only part of the staff cost given that compliance changes generally involve multiple departments and people.
How do you determine costs for staff time to make regulatory changes? Start by reviewing the proposed rules. Most proposals contain estimated compliance costs. “Estimated compliance costs” detail the appropriate agencies’ estimates on time required to comply with the proposed rule. Note that most estimates don’t include staff training time.
Compare this to proposed rules credit unions already have implemented, including the Secure and Fair Enforcement for Mortgage Licensing Act, estimated to take 351 hours for initial “set-up” (developing policies and procedures; setting up compliance systems; and establishing reporting, filing, and information dissemination systems); 3.5 hours per mortgage loan originator for registration and to provide the unique identifier to consumers; and 0.25 hours per mortgage loan originator to renew his or her registration annually. In its estimates, NCUA didn’t include the costs for credit unions to maintain the registrations and respond to consumer inquiries.
Be mindful that most proposed rules estimate the compliance costs as one-time costs and don’t address the continuing costs necessary to stay in compliance. You’ll likely see an increase in compliance costs in 2012 given the amount of new and amended rules officials expect the Consumer Financial Protection Bureau to issue.
Considering the increasing compliance burdens, you also might need to evaluate whether it’s more cost-effective to outsource compliance to third parties, rather than having credit union staff read and analyze lengthy and complicated regulations. When staff time and resources are limited and there are additional compliance issues to tend to, hiring additional staff or outsourcing compliance may be necessary to meet your strategic objectives.
The bottom line: The only way you can prepare for future compliance challenges is to ensure a cost allocation for compliance is in your budget. The cost for peace of mind is worth every penny.
Note: Any information provided herein should not be construed as legal advice or legal services.