Five Reasons Compliance Reviews are Trending Right Now

March 1, 2023

By Jovilyn Herrick, Senior Director, Client Solutions 

Even credit unions with top-notch compliance programs are applying extra scrutiny to their operations this year. That’s because a slew of intensifying pressures warrant additional care and feeding of governance, risk and compliance initiatives. 

What follows are the five emerging market realities inspiring more credit unions to perform thorough compliance reviews in 2023, along with action steps we expect compliance teams to take this year. 

1. Pandemic-Era Policy Changes Linger Undocumented 

There is no doubt the quick-thinking action that credit unions took to help their members during COVID-19 layoffs and lockdowns had a positive impact on millions. Thanks to regulatory examiners who understood the upside of on-the-fly changes, credit unions were given some leeway when it came to implementing relief programs. When credit unions made adjustments to policies and procedures during the early days of the pandemic, they often went by without documentation. As new employees entered the fray, disrupted operations became the new status quo. 

Now that the worst of the pandemic appears to be behind us, examiners are anxious to dig into CUs’ current operations to see if any lingering COVID-inspired changes have either expired or are no longer applicable. Addressing those changes may take one of two forms: retraining staff to adhere to normal policies and procedures or formalizing the changes into updated policies and procedures. In either circumstance, the credit union will want to ensure it has documentation of what was done during the pandemic, as well as the duration of the changes and outcomes of them.

2. 'Game of Telephone' Threatens Regulated Processes 

As mentioned above, new employees who joined the credit union during the last two years did so in less-than-typical times. Not only were credit union operations impacted dramatically, members and their needs changed, too, sometimes overnight. Under stress and out of their routines, tenured employees can be forgiven for not being at the top of their mentoring games. Undoubtedly, though, this impacted the onboarding of new team members. 

Enter the Great Resignation, and the problem of hurried, inadequate training compounded. New staff were at the very end of a long chain of instruction, essentially a game of telephone training on how to complete any number of highly regulated processes. 

In 2023, compliance teams will work closely with risk management to determine the highest priorities areas for refresher training and get to work building a calendar of workshops for internal teams. 

3. Competitive Battle for Member Business Rushes Marketing 

High interest rates and rising inflation typically result in lower demand for loans. However, credit union lending has been on a slow incline in recent months. With the cost of funds still high, credit unions will be asking their marketing teams to help them chase down more dollars in the form of deposits to support the lending function. 

Non-interest income, too, will remain a top priority for finance folks who value revenue diversification. This, too, will, trickle down to the desks of marketing folks. 

As the need for highly effective, highly targeted marketing promotions rises, marketers may be tempted to skip a few steps along the journey from concept to launch. In anticipation of this, compliance teams will want to check in on marketing reviews as they are analyzing the overall function of compliance. Does all marketing collateral meet regulatory requirements? This is a great opportunity to forge new internal bonds as well. When marketing and compliance work closely together, they often get into a good rhythm that meets both department and organizational objectives.   

4. Number of Policies and Procedures Balloons 

The volume of financial products and services provided by the average credit union has expanded exponentially. Similarly, the number of regulations, frameworks and areas of guidance from examining bodies is back on the rise. What was once a binder of paper policies and procedures is now a virtual library of digital documents stored in a hodgepodge of physical and virtual storage areas. It’s amazing the average credit union can keep up. 

In 2023, compliance reviews will focus heavily on cataloging and analyzing a credit union’s holistic approach to policy management in a calendared fashion. Although it’s not always mandated for a policy or its associated procedures to be reviewed annually, it is a best practice. Creating a calendar that spreads these tasks out evenly over a 12-month cycle is doable and more manageable for most credit unions, regardless of size. 

Tech investment to automate much of this task is likely already underway within many cooperatives, so we expect to see more expansive use of this and other forms of regtech to wrangle the policy chaos. 

5. Third-Party Vendors Weave a Complicated Quilt 

To ensure members have the best possible experience with each of their financial products, credit unions are working with a plethora of fintech vendors—arguably more today than ever before. Each of these vendors promises to help its credit union partners stay in compliance. However, the regulatory buck stops with credit unions. Therefore, credit union compliance teams will want to include ongoing vendor due diligence in their compliance review. 

Every partner promise should be checked, spot-checked and double-checked regularly to ensure the credit union is providing consumers with experiences that meet the letter of the law. 

The Calendar as BFF to GRC 

Compliance reviews can be complex enough to take an entire year or longer. The calendar is every credit union’s best friend. Scheduling by priority seems to work for most credit unions, small and large. 

Calendars also make for an easy-to-repeat compliance review that can be handed over to new compliance team members as they come aboard or shared with external consulting teams as they collaborate with the credit union. Or, even better, the review can be uploaded to a workflow automation software that not only keeps compliance reviews on track but documents performance. Especially today—when GRC tasks are landing on the laps of leaders not entirely comfortable with the disciplines—an historical record can be a lifesaver. 

Originally published in CU Management, February 20, 2023.