Last year placed significant compliance demands on financial institutions, and the bank C-suite appears to be poised for a 2016 that’s no less challenging.
CSI’s Annual Survey Yields Executive Insight
In November, we reached out to financial industry executives nationwide with our annual Banking Priorities survey—our way of gauging their mindset and plans as the new year approaches. More than 100 executives, representing banks and credit unions from every asset size and geographic area of the country, shared their thoughts. The largest contingent of respondents identified themselves as C-level executives (36.5%).
The survey covered a range of topics, the full results of which are available in CSI’s 2016 Banking Priorities Executive Report. However, one of the most revealing questions asked, What are your greatest compliance challenges in 2016? Given eight areas from which to choose, the respondents answered as follows (with comparisons to last year):
- Mortgage Compliance: 68.8% (64.8%)
- Consumer Protections: 52.1% (NA)
- Vendor Management: 42.7% (36.3%)
- BSA/AML: 39.6% (45.8%)
- ERM: 27.1% (21.2%)
- Stress Testing: 15.6% (22.9%)
- OFAC and Watch List Screening: 7.3% (11.7%)
These answers reflect an industry well aware of prevailing regulatory priorities and their related challenges. Encouragingly, C-level executives and compliance officers appear to agree with each other on the rankings, an indication that the regulatory push for greater compliance understanding by executive management and boards has been assimilated.
And, as with last year, respondents ranked mortgage-related regulations as their greatest compliance concern heading into 2016. There are three main reasons why mortgage compliance continues to cause great worry: TRID, HFIAA and HMDA.
TRID Continues to Trip Up Banks …
TRID compliance is living up to bank executives’ worst fears. Despite the fact that the effective date was delayed by two months, the integration of updated disclosure systems and the corresponding staff training are proving difficult. Just prior to implementation, the American Bankers Association (ABA) estimated that “only 60 percent of banks report having received production versions of systems by September 1. In almost all instances, banks report that they have had inadequate time to properly install and test the software.”
By now that installation and testing headache should be easing. Unfortunately, it only leads to the next one as bank employees try to comprehend the intricacies of the new disclosures. They are learning that understanding the rule in theory and applying it are two very different things. National Mortgage News presciently described that anxiety when it warned last June that TRID insecurities would be rampant. “The chance of a mistake are (sic) high with a rule so rigid that it requires fees to be listed in alphabetical order, and the costs for violations will be steeper than ever.” Those fees run as high as $5,000 per day per violation for non-compliance, $25,000 per day per violation for reckless non-compliance, and $1 million per day for knowing non-compliance.
On the bright side, regulators have said they would be lenient in the initial phase-in period as long as banks make a good faith effort to comply. While they did not specify what constitutes a good faith effort, assume it means showing that you planned appropriately for the TRID implementation and have good policies and procedures in place to follow the rule.
…with HFIAA on Its Heels
On Jan. 1, 2016, the final piece of HFIAA went into effect. Covered institutions (primarily banks with over $1 billion in assets; see the Final Rule for small bank exemption rule details) must now have procedures in place to ensure the following:
- Mandatory flood insurance is escrowed on all residential real estate and mobile home loans originated, refinanced, increased, extended, or renewed on or after Jan. 1, 2016.
- Written notice of the option to escrow for flood insurance premiums and fees is provided to all borrowers of outstanding covered loans booked prior to Jan. 1, 2016.
It’s important to understand what constitutes a covered and non-covered loan. HFIAA exempts business, commercial, and agricultural purpose loans; subordinate liens; loans where a homeowners association pays the premiums; home equity lines of credit; loans with terms of less than 12 months; and non-performing loans.
HMDA Effective Dates Only Seem Distant
With everything else going on, the temptation to procrastinate on your HMDA implementation will be great, especially since the effective dates still feel very distant. In reality, and just as we learned with TRID, they will come quickly enough. So the sooner you get ready to implement HMDA the better off your institution will be.
Remember, though, to not lose sight of your other regulatory obligations in 2016. Check our blog next week for an exploration of the remaining compliance concerns highlighted in CSI’s 2016 Banking Priorities Executive Report.
Keith E. Monson serves as chief risk officer for Computer Services, Inc. (CSI). In this role, Keith maintains focus on CSI’s compliance initiatives to establish and build out an enterprise-wide compliance framework for risk assessment and reporting, issue management and other key components of CSI’s corporate compliance program. He also works closely with CSI’s Board of Directors Audit Committee as well as other compliance teams across the organization to promote a culture of engagement and connectivity while implementing and advising on practices and related standards.