A Changing World Brings Compliance Complexity

June 21, 2022

Written by Natasha Chilingerian

Of all the reasons why credit unions choose to collaborate with external parties, the desire to streamline compliance work just might top the list. Compliance has historically been viewed as a daunting, resource-draining area of business for credit unions, especially smaller ones, and in a world that looks increasingly different than it used to – with evolving financial needs necessitating new products and services, for one – the requirements are only multiplying and becoming more complex. That’s why many rely on helpers such as peer credit unions, CUSOs, consultants and technology platforms to consistently check off every compliance to-do item on time.

One third party that is focused on assisting credit unions with their governance, risk and compliance (GRC) needs is the Des Moines, Iowa-based ViClarity (formerly PolicyWorks, LLC), a GRC management solutions provider serving highly regulated industries. In August 2021, ViClarity launched AdVisor, a suite of consulting services for credit unions utilizing the company’s GRC technology solution, which includes an advanced onboarding service and on-demand access to ViClarity’s compliance experts.

CU Times recently asked Erin O’Hern, ViClarity’s vice president of strategic initiatives, what has been topping her clients’ list of compliance concerns lately, as well as how hiring challenges, the influx of fintech partnerships and the threat of climate change has impacted GRC teams.

CU Times: With ViClarity having launched its AdVisor services less than a year ago, what areas of compliance have your credit union clients been requiring the most help with in late 2021 and early 2022? And, what are some specific ways AdVisor consultants have been helping them tackle those challenges?

O’Hern: While lending compliance questions have remained consistent and constant, we’ve seen a significant increase in the last six to eight months related to compliance marketing questions and reviews.

As we come out of the pandemic into a “new normal,” credit unions are reaching out to members with creative new products and services and working to engage members as the market and financial needs change. Helping credit unions review their marketing pieces and understand the parameters of the compliance requirements has been a top request.

We’ve also focused on educating credit unions about the required disclosures to make sure the marketing and communication remains clear to and easily understood by members.

Policy reviews are also a focus for our clients as they update strategic plans and adjust their products and services.

CU Times: Have you been seeing any evidence that staffing issues, such as employees resigning and credit unions having trouble hiring talent, have contributed to the challenge of meeting compliance requirements? What do you advise credit unions to do that may be shorter-staffed to accomplish more with less, and to ensure minimal disruption to their compliance work as employees come and go?

O’Hern: Absolutely, hiring and retention continues to be a compliance challenge. Training new compliance team members takes a lot of time and resources for credit unions during staff transitions. In addition to increasing the credit union’s compliance risk, it can hinder growth by slowing down processes to adapt to members’ needs and changing markets.

An important consideration for credit unions experiencing gaps in staffing is continuity. Credit unions should avoid losing critical knowledge when a staff member leaves. We’ve helped credit unions leverage GRC technology to ensure there is documentation and a compliance history for team members to refer back to. The tech has also allowed multiple staff members at the credit union to share the compliance load when there is a staffing gap.

Multiple people interacting and contributing information through technology not only creates a stronger compliance system with an audit trail and gap analysis, it saves the credit union valuable time in tracking down information from other team members and relearning steps that have already been taken, which are common pain points during compliance staff turnover.

Through AdVisor services, we’ve seen credit unions benefit from consistency in tracking and monitoring compliance activity, as well as having the ability to pick up the phone and call a compliance team to discuss the best approach to meet a regulation and serve their members. Leaning on outside compliance resources, especially with staff new to compliance, while maintaining internal records through technology, has been a successful combination during these staffing challenges.

CU Times: With fintech partnerships becoming more commonplace for credit unions, have you noticed an increasing need for assistance with conducting due diligence of fintech partners? What is ViClarity’s high-level risk management advice to credit unions that are entering a new partnership with a fintech company?

O’Hern: We’ve started to see a change in the way due diligence is conducted. New partnership opportunities in conjunction with staff challenges has emphasized the need for developing more efficient ways of conducting due diligence.

Automating reminders to follow up with partners and vendors for additional or updated information is just one example of how credit unions are achieving that efficiency. Streamlining the collection of due diligence information through GRC software is another.

As credit unions are evaluating new partnerships, it’s important to fill in the gaps, and ensure all due diligence is not only collected but updated regularly. Many fintech partners make frequent changes to stay relevant to market needs, so collecting updated information consistently should be incorporated into every credit union’s process. Also, onboarding and implementation can look very different between individual fintech partners, so it is helpful to be clear on what that process will look like before the partnership is finalized.

CU Times: I read your blog post on the potential regulatory impacts of climate change, and it sounds like at this point, credit unions are being advised to consider implementing best practices around potential climate-related business changes/disruptions. However, you said that “these types of changes and recommendations have the possibility to move from a best practice to a regulated one.” Of the five areas outlined in the blog, which do you see as most likely to produce new rules from regulators, and how should credit unions be thinking about and preparing for future climate change-related regulations?

O’Hern: The area most likely to produce additional regulatory revisions in the short term is in new products and services. From electric vehicles to solar panels, renewable sources of energy for consumer and commercial needs continue to produce innovation.

Not all new activities to fight climate change will require different regulatory treatment. However, the need for financing these activities only continues to grow. Figuring out the right way to support financing needs could bring about new compliance considerations for underwriting, evaluating collateral and perfecting security interests.

Outside of new specific rules, the risk to the overall safety and soundness of the credit union cannot be overlooked in relation to climate change. The insurance industry has been keenly focused on this issue as the financial impact of natural disasters only continues to grow. For credit unions, it’s smart to look at updated data on weather-related risks in their area. Whether its wildfires or floods or something else entirely, credit unions should consider ways to both educate and protect members, particularly as it relates to financial investments.

Climate change impact will vary quite a bit based on fields of membership and location. However, every credit union can benefit from understanding their long-term risks to help the collaborative and its members prepare today for what may be coming tomorrow.

Editor’s note: O’Hern collaborated with Chuck Uguccini, ViClarity’s manager of compliance and AdVisor services, for the above responses.

Services performed by ViClarity are compliance and not legal in nature, and do not form an attorney-client relationship or any of the protections attendant to the attorney-client relationship.

Originally published in CU Times.