Major regulatory fines, new compliance obligations drive anxiety levels higher
Wolters Kluwer’s most recent annual survey findings of U.S. banks, credit unions and other lending organizations shows a large uptick in respondents’ concerns over risk management and regulatory compliance matters. The 11th annual Regulatory & Risk Management Indicator survey cites a considerable rise in the Main Score index, moving from a level of 94 in the 2022 survey to 119 in 2023.
Foremost among contributors to the 25-point index increase were both compliance-related issues as well as financial regulatory factors. Among them, according to a Wolters Kluwer press release, was a three-fold increase in the dollar amount of regulatory fines imposed over the past 12 months, moving from $1.3 billion for the 2022 survey period to $3.9 billion this year. Wolters Kluwer also cited respondents’ perceptions of heightened scrutiny around fair lending practices which, coupled with a continued reliance on manual processes and competing business priorities further contributed to the anxiety levels and compound the challenges faced by financial institutions.
“Lenders have faced many headwinds recently, from the turmoil generated earlier this year by a few but significant bank closures, to the interest rate environment and the effects of inflation, leading to 30-year fixed-rate mortgages in the U.S. reaching rates of 8%—their highest in more than two decades,” said Tim Burniston, Senior Advisor, Regulatory Strategy, for Wolters Kluwer Compliance Solutions.
Respondents rank the Section 1071 small business lending data collection rules as highest among their concerns, with 74% expressing it as a high or moderate worry, particularly around accurately capturing new data fields, system upgrades, and staff training for compliance. Looking ahead, respondents plan increased investment in managing regulatory content (57%), updating compliance policies and procedures (45%), and improving quality assurance capabilities (41%) in compliance management. They express skepticism about a reduction in regulatory burdens over the next two years, with 58% considering it very unlikely and 17% somewhat unlikely.
In other compliance-related news, a recent Wolters Kluwer survey found that levels of preparedness among companies subject to new “beneficial ownership” reporting requirements under the Corporate Transparency Act (CTA) remains very low. Only three percent of more than 2,500 respondents participating in a November webinar on beneficial ownership readiness indicated they were 100% prepared to comply with the beneficial ownership information (BOI) reporting rule that takes effect January 1, 2024. Another 33% of respondents were unsure whether their organizations were subject to CTA beneficial ownership filing requirements.
“While the beneficial ownership rule represents one of the most significant regulatory developments to impact millions of businesses, there remains much preparatory work for those organizations subject to the new rule, according to our latest survey of businesses, law firms and CPA firms,” said George May, Vice President and Segment Leader, Small Business, for CT Corporation, a Wolters Kluwer business. “Wolters Kluwer is doing our utmost in helping address the growing sense of awareness and urgency for all market participants that will be impacted by the new requirements. Now is the time for those entities to take action in beginning to prepare to meet these reporting requirements.”