I hear folks from time to time say regulatory compliance is a “burden” or a “real pain.”
Well, at some level I can’t disagree. But at a fundamental level, how we carry out our responsibilities for regulatory compliance is one reason we are in business.
We have chosen to serve our members’ financial service needs, and part of our duty is to follow the compliance rules by which we must operate.
In part, you get paid and your credit union stays in business because you carry out the hard work of following the rules. With that in mind, I propose it is appropriate to look at regulatory compliance as a fundamental duty and activity—and thus an opportunity—for credit unions, not a “necessary evil” or a “pain.”
|Bill Klewin: View compliance as an opportunity, not a burden.|
With that viewpoint, regulatory compliance becomes an integral part of your credit union’s planning and operations to navigate risk.
You deal with risk every day, as does any business—interest-rate risk, reputation risk, moral risk, and morale risk. With each of these different risks there are opportunities.
Reputation risk, for example, can be an organization killer. If you lose your reputation, you may lose your entire business. But if you can grow your reputation, you can create an almost unbeatable business model.
Look at The Walt Disney Company’s theme parks. Its reputation as a family oriented, high-value experience makes it almost unchallenged in its market space.
Compliance risk is another concept that provides both real, existential risk (imagine getting sued for discrimination under the Equal Credit Opportunity Act or the Fair Housing Act), and real opportunity to use compliance to make your business stronger and more important to members.
For example, the Consumer Financial Protection Bureau’s recent mortgage rule changes place significant duties on you. They require you to change how your mortgage loan officers are compensated.
The rules change how you service and disclose mortgage, and they place additional burdens and costs on certain types of loans, especially for nonprime loans. These rules have changed how you run your business.
Many credit union executives took this opportunity to fundamentally rethink their methods of mortgage lending to a) meet their regulatory duties and b) rethink why and how they provide mortgage services—in effect, using regulatory compliance to navigate risk.
Here are some ways you can use regulatory compliance to help navigate risk at your credit union:
• Create a risk and regulatory oversight governance structure. You have an asset/liability committee, audit committee, and supervisory committee—so why not a regulatory oversight committee?
A compliance governance committee is appropriate, reporting to the CEO or to the board.
• Appoint a chief compliance and risk officer.
• Use compliance duties as a variable in strategic decisions on how you will allocate capital (money and labor) to address risks.
• Identify and respond to new or newly enforced compliance requirements. Often, such requirements have an impact across the organization. The mortgage loan officer compensation rule, for instance, affected human resources, finance, lending, and operations.
• Assess, evaluate, prioritize, and mitigate unacceptable compliance risks.
The best way to navigate risk is to simply integrate regulatory compliance responsibilities into your credit union’s daily operations and make them part of your overall strategic operations.