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Regulatory Fines & Compliance Worries Mounting for Banks

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Banking Sector Building

A notable increase in concerns over risk management and regulatory compliance issues headlines key challenges facing U.S. banks, credit unions and other lenders, a Wolters Kluwer survey of industry professionals, which showed a 25-point increase in the index Wolters Kluwer uses to score stress in the sector.

The primary contributors to this surge include 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 said. Compliance-related hurdles, such as perceived heightened scrutiny of fair lending practices, continued reliance on manual processes and competing business priorities further 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 adviser of regulatory strategy for Wolters Kluwer Compliance Solutions.

The concerns shared in this year’s survey responses also come against a backdrop of major regulatory changes that include the finalization of new, updated Community Reinvestment Act (CRA) rules and the small-business data collection and reporting regulations issued under Section 1071 of the Dodd Frank Act.

Respondents rank the small-business lending rules foremost among their concerns, with 74% expressing it as a high or moderate worry, followed by Unfair, Deceptive or Abusive Acts or Practices (UDAAP) compliance (67%) and CRA rule changes (62%). Noteworthy concerns cited in relation to the small-business lending rules include accurately capturing new data fields, system upgrades and staff training for compliance.

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