A brief background to regulation in Financial Services
Regulation in lending is as old as lending itself. Before the role of governments and formal law, a regulation was the law and will of God, and as lending became more mainstream and banks became commonplace, the governments stepped in to ensure the control risk and compliance to the law. Financial services have always been at the forefront of regulation.
Ancient history tells us little about the cost of compliance, but if the last 20 years are anything to go by, it is ever-increasing, and the cost of non-compliance even more so. Credit Unions are bearing the brunt of this cost due to the business structure of the businesses, thus reducing service quality and increasing strategic risk for the members.
Credit Unions and the ever increasing cost of compliance
The numbers speak for themselves, according to CUNA, credit Unions in North America had a cost of compliance of $6.1bn in 2017, an increase of $800mn from 2015, representing a 15% growth year-on-year. This cost only includes personnel and third party costs; the costs of non-compliance vary anywhere between $100k - $1mn+ per Credit Union, by state, a number compliance professionals in most industries would balk at. 39% of the payroll for small Credit Unions ($10-500mn assets) is for compliance departments, and as the unions become more sizeable, it plateaus at 15% of payroll costs ($1bn+ assets). This doesn’t include third-party compliance assistance and cost of non-compliance (Which runs to the millions depending on the state you’re in on average)
When you factor in that even with such a high presence, most compliance departments are understaffed and overworked, a GRC software reduces the department’s burden and streamlines processes. GRC software, especially ones like VComply, provides a real-time dashboard to monitor compliance, risk, and Internal Governance. GRC software automates report generation (Any report on the data you have on the platform) and filings with the various federal and state departments.
Governments issue almost one notice a day for financial services firms on regulations. Compliance and risk owners are hard-pressed to monitor alerts, notifications, and apply it to their compliance program and monitor progress. Risk management takes center stage in such a volatile regulatory regime, and compliance officers are forced to reassess their regularly, and stress test their risk programs as frequently.
In an age where small Credit Unions find it hard to market and find visibility for themselves due to regulatory requirements, there seems to be an unlikely savior in GRC software. GRC reduces the cost of compliance, provides a strategic solution in aligning the stakeholders’ interests, and allows Credit Unions to focus on their business than compliance requirements.
Credit Unions and the cost of non-compliance
The cost of compliance is ever increasing. Deutsche Bank is the most visible example of the cost of non-compliance in the Financial Services sector. Increasing credit controls, risk management requirements, and regulations like Basel III, it is imperative for a Credit Union to have a GRC in place.