Automating Compliance
By Swedberg, Jamie | |
Proquest LLC |
A practical guide.
Almost every credit union automates some part of its compliance l process. Much of compliance is, after all, record-keeping-being able to prove to examiners that a financial institution follows its own rules and the regulations of its state and federal governing bodies. So if a credit union is doing anything more high-tech than filing paper documents in its records room, it has started down the path.
But
"They have [automation], but it's almost like they have three or four different components of technology and none of them really talk very effectively with each other," she says. "It's often a matter of sitting down and analyzing what they have and how they can make it more efficient, and how they might be able to get rid of all of this and have maybe one or two systems that can do everything for them."
Allen says many credit unions will have some automation surrounding calculation of annual percentage rates, and some have also implemented calculators for demonstrating compliance with the ability to repay/qualified mortgage rule. But they could be doing more to make the process easier.
"With some of the credit unions that we've been dealing with, we've been going in and doing some gap analysis with them, just to see where some of their deficiencies are," she says. "Often some of their HMDA (Home Mortgage Disclosure Act) data gathering is a little cumbersome, so we'll recommend companies out there that do some HMDA data collecting, and where they can actually do some fair lending testing and things like that."
"We believe in order to solve the problem well, you really need to automate the whole lifecycle, not just part of the process," he says. "It really is two types of lifecycle-the lifecycle of your customer or client, and then the lifecycle of the actual regulation itself.
"Post-2008, there have been a lot of new regulations coming in. So we talk first about the episodic event of bringing on a new regulation, and then the ongoing process of keeping up with that regulation: How do you continue to onboard new customers and monitor for changes with those customers while following those regulations? I absolutely do think that it is viable for one vendor to offer the regulatory capture of the required information, especially when it comes to the client data."
Piece by Piece
While a very broadbased compliance solution may be ideal, any system that automates workflow and collects data about some part of the credit union's offerings will help with the compliance process. That's even true if those systems are nominally "about" something else, such as loan origination or customer relationship management.
nCino (www.ncino.com), based in
"An audit trail and a timestamp is created at every stage," explains CEO
The price of some large-scale compliance solutions can make them less appealing for smaller credit unions, say providers.
"We normally look at an asset size of
Allen says that's true of mortgage-related compliance systems, too, especially if CUs are looking at fully outsourced solutions.
"Pricing [on APR, high-cost mortgage, and ATR/QM calculations] is generally per-unit, and the more units you run through the system, the better price you get," she explains. "We also do vendor management on the servicing side. If credit unions are sending out their servicing, we'll monitor that servicer and do audits. It can be
To make it more affordable, Hoang recommends starting out incrementally. He says credit unions should find the area where compliance is costing them the most and tackle it first.
"Let's take KYC [Know Your Customer]," he says. "If you're doing institutional KYC, your costs could start anywhere from
And as much as providers recommend finding broad-based solutions that tackle compliance on a large scale, it's also possible to cobble together a fairly efficient compliance automation strategy from disparate parts. Frankly, it's what most smaller CUs do.
"I'm not sure that we really have a true enterprise compliance solution in place," says
"What we use is our core system that's tied into the OnBase imaging system that we have. From the account signature cards to loan documents, along with various other types of documents for regulatory purposes, we're trying to keep everything imaged in that system. So when NCUA comes in, and they need to look at something, we provide them with laptops so they can access that system and view those documents."
The CU also uses PolicyPro from
The latter doesn't integrate as fully with the core system as Voight would like, so the front office still has to generate some documents manually. But it's a good start, and it makes life easier at exam time.
The Real Gains
Despite all the tools available, Allen says there's no such thing as fully automated compliance. At some point, human beings have to step in.
"Let's say you have a loan in your loan originating system, and you have [a compliance solution] like ComplianceEase (www.compliancease. com),
"Say you get a better automated solution for HMDA reporting. You're still going to need a compliance officer to analyze the data and fix the errors that are happening in that report before they submit to whatever regulator they have to submit their HMDA data to. You still need your compliance people."
At the end of the day, she says, credit unions don't necessarily save a lot of person-hours with automated compliance solutions. Even if they got rid of a processor or two, they'd probably have to pick up those hires on the IT side.
But where they do realize gains is in the ability to make more loans and to reduce compliance risk at the same time. Outsourcing to a provider of an automated solution has the potential to reduce risk even further, because it's another set of eyes.
"We will double-check the automation systems just to make sure that they're calculating properly," says Allen. "You still have to have that human element and that human touch going through the files and double-checking, because CFPB will ask how you're monitoring your vendors. If your answer is, 'We run everything through this system,' they're going to ask, 'Well, how do you know they're doing it right?'"
Automation, then, isn't necessarily a way of removing the human component from compliance. Rather, it's another layer, another way of demonstrating diligence.
"I think generally, when you have a better process, there's no doubt that it is going to result in a better outcome," says Hoang. "And the more eyeballs that you can get detecting when there's a problem, the better."
Some Automated Compliance Solution Providers
ComplianceEase (www.complianceease.com)
Compliance Tech (www.compliancetech.com)*
Continuity Control (www.continuity.net)
LEVERAGE (www.myleverage.com)*
nCino (www.ncino.com)
Policy Works (www.policyworksllc.com)
Quantivate (www.quantivate.com)
QuestSoft (www.questsoft.com)
Strevus (www.strevus.com)
Verafm (www.verafin.com)
* CUES Supplier members
Shopping for Solutions
Recently,
"We wanted something that would allow us to share information, but that also gave us flexibility and the power to be able to design our own workflows," he explains. "In my business unit, if we need to add another field to a table or another question to a checklist that we use for monitoring home equity loans, I can do that and not have to go through some central authority. I thinkthis particular solution was a good mix of having breadth in a lot of different areas where the credit union could use it, and then also having some flexibility and power for us at the individual business unit level."
The best way to know for sure whether a product will be worth the investment is to actually try it out, says
"Most Web-based tools, you can try it out, and you should be able to take advantage ofthat on a free basis," he says. "With compliance, you might just put a couple of records through and see if it can manage that whole lifecycle. That's the best way to get a holistic perspective of what a product can do."
Resources
Using automated compliance systems is a way to capitalize on the "silver lining" of having to comply with governmental regulations. Read more in "Embrace the Moat" on p. 16.
Get our monthly "On Compliance" column (and all of our monthly columns) delivered to your email inbox by signing up for the CUES Advantage weekly e-newsletter at cues.org/enewsletter-subscribe.
It's not too late to register board members from your credit union for Director Risk and Compliance Seminar. The event will be held
Copyright: | (c) 2014 Credit Union Executives Society |
Wordcount: | 2147 |
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