Creating a Successful Compliance Program: Budgets, Buy-in & Building a Team

Expanded regulations and heightened scrutiny have urged financial institutions country-wide to prioritize compliance efforts.

Given the complex nature of consumer compliance and risk management, compliance officers are challenged to build multi-faceted programs that ensure Fair Lending across the organization. But developing an effective compliance program is tough -- and the stakes are high. There’s not a lot of room for failure, and you’re already pressed for time.

Stretched to manage a host of responsibilities, many compliance officers struggle to establish a proper foundation and create a successful plan. You need helpful guidance on essential elements like determining a budget, garnering leadership buy-in, and structuring a team. Understanding how to approach each of these aspects is critical to designing the type of compliance program that’s healthy, robust, and valuable to your institution.

Use the following insights to set your efforts on the right path.

Budget Wisdom: Determining Your Dollars

Budgeting can be difficult in any area of a financial institution, but it is especially trying for the compliance department. Often, compliance is looked upon as a high-cost area of the business, and the cost of compliance has the potential to increase as regulators get more sophisticated and risks evolve. In fact, $818,000 is the annual average cost of compliance for a community bank.

Your institution’s compliance program budget will be unique based on your individual needs and realities. To formulate a proper budget, you’ll have to examine a number of factors, including:

• Company revenue
• Number of employees (including any potential new hires)
• Complexity of your business
• Inherent risk exposure
• Time required for compliance activities, such as gathering and analyzing data, building reports, identifying risk exposure, reading the news, preparing for exams, etc.
• Cost of necessary tools and resources
• Cost of training

Of course, the higher your company’s revenue and/or the more people it employs, the bigger your budget should be.

It’s also important to leverage solutions that generate compliance efficiencies and return the greatest value for your investment. For example, consider the following time and expense savings for institutions that leverage our analytics software:

• Many compliance teams without software spend 96 hours on analysis and reporting per quarter, while Analytics customers spend only 2-3 hours.
• 56 annual hours of board reporting is reduced to one hour of review.
• $240,000 is the average total salary for a team of four compliance analysts, whereas the software comes with access to a team of analysts and experts at no extra cost.

Innovation can help your institution offset growing compliance costs. With the right partner, you’re able to leverage technology that reduces the high costs typically associated with establishing a compliance program and appropriate your budget more strategically.

Buy-In Pointers: Procuring Leadership Support

All members of senior management are critical to forming a successful compliance program. Not only do they set the tone for your organization’s compliance culture, but they also wield the decision-making power to approve the program’s strategies, systems, tools, training, and budget. Additionally, they share a great load of accountability if the institution is found to be in violation of current regulations.

Because your C-suite and board of directors play an essential role in your compliance program, garnering buy-in from them is extremely important, though not necessarily easy. The best way to approach this effort is to keep your leadership team fully informed on compliance program matters and clearly communicate important issues, such as:

• Risk factors: Make sure you are relaying accurate, timely information on the inherent risk associated with your market, as well as the individual risk stemming from potential compliance weaknesses within your particular institution.

• Objectives: To illustrate your compliance program’s strategic approach, outline the short- and long-term goals you aim to accomplish.

• Departmental responsibilities: Because compliance is an organization-wide undertaking, it will be necessary to detail how each department plays a role. Be sure to designate specific responsibilities based on departmental functions and communicate how these activities will impact the program’s overarching goals.  

• Analysis truths: Your leaders must understand the importance of analyzing the institution’s HMDA and non-HMDA loans, as this is one of the best ways to identify disparities and pinpoint potential discrimination. Make sure that your efforts to procure buy-in from senior management include dynamic communication on the intrinsic value of Fair Lending analysis as a major component of your program.

• Training: Responsible for aligning the financial institution’s strategies with Fair Lending laws and regulations, board members may be involved with approving policies, reviewing exception reports, understanding complaint logs, reviewing compliance committee minutes and approving large loans. This level of responsibility requires a working knowledge of Fair Lending laws and regulations and how it impacts their role as a board member, so it’s important to ensure that training is provided to the entire leadership team.

Team-Building Tips: Deciding How to Staff Your Program

Your compliance program can only be as successful as the people contributing to it.

In the world of Fair Lending, compliance is not achieved in a silo; it is pursued as a group effort and affected by individuals throughout your organization. That is why deciding how to build your team is fundamental and should comprise a two-pronged strategy.

The first aspect of building your team ensuring that everyone in your institutions received regular training. Everyone at your institution needs to understand their role in the compliance program through well-organized and enforced training on Fair Lending compliance, from general information to role-specific education. Make sure that your compliance training approach includes:

• Formal communications that outline what is permitted by your policies, such as rules for declining loans or requirements for file documentation.
• Ways to track and measure training comprehension.
• Repercussions for failing to attend training or pass comprehension assessments.
• Resources and tools that adequately address current regulations and evolving compliance needs.
• Sensitivity training to help prevent discrimination by employees who deal directly with applicants and customers, if applicable.

The second aspect of structuring your team is determining whether you need to staff up or utilize a third-party resource to address the extra tasks and responsibilities required for a successful compliance program. Are additional people needed to ensure efficiency and accuracy, or can this function be outsourced to save on overhead?

Many compliance officers and management teams have come to realize that leveraging analysis software and expert partnerships enables their institutions to reduce both compliance risk and costs. Outsourcing the time-consuming tasks and specialized functions of Fair Lending compliance to outside expertise can be one of the most effective tactics for addressing key compliance tasks and saving money in the long run.

Ultimately, establishing a compliance program involves a number of challenges for compliance officers, who are already burdened with taxing schedules and complex responsibilities. Before diving into this daunting endeavor, it essential to arm yourself with the most valuable information and resources to steer you in the right direction. For more expert guidance on managing Fair Lending compliance at your organization, get your free info kit now.

UNCOVERING FAIR LENDING RISK
to Build a Stronger Fair Lending Program

Learn the tools for helping financial institutions
uncover and analyze their fair lending compliance risk, implement
appropriate controls, and enhance their overall fair lending program
at a time of increased government and public scrutiny.

Read more about lending compliance management.