The Evolution of the Compliance Officer Role

Thoughtware Article Published: May 01, 2016
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Twenty years ago, the compliance officer role was considered a middle-management position where someone drew the short straw of added responsibilities. Today, the compliance officer has a direct line to the audit committee or board of directors, including a dotted line to the CEO. How did the position evolve so quickly and what will it look like 20 years from now?

The compliance officer position was created and energized by past economic crises—the savings and loan crisis and recent recessions of 1981, 1990 and 2001 as well as the Great Recession of 2007 to 2009. Historically, recessions would occur every five to 10 years. The deeper the economic downturn, the more the regulation pendulum would swing to prevent catastrophic effects to the stock, housing and job markets and to deter decreases in wages, increases in government spending and budget deficits. Many compliance officers believe Congress has created an avalanche of regulations affecting every area of financial institutions. On top of the expertise to review and evaluate overall compliance within departments, compliance officers now need the strong support of senior management and the board of directors.

Despite the high demand, there are few compliance officers seeking employment. Recruiters and human resources personnel have trouble finding people with compliance experience who are willing to move. Starting in 2013, the largest institutions began hiring thousands of people in compliance-related positions to avoid large penalties, fines and regulatory criticisms. Recruiters have been telling clients for years to expect a trickle-down effect because of the hiring frenzy caused by larger organizations.

From 2000 to 2014, there was an average of 880 enforcement actions per year; the number peaked at 1,800 in 2013. In the same year, restitution and civil penalties totaled $3.6 billion and $919 million, respectively. Since its creation, the Consumer Financial Protection Bureau has issued more than 20 enforcement actions to bank holding and credit card companies, quoting as the top reasons mortgage loan and servicing issues, Bank Secrecy Act of 1970 and anti-money laundering deficiencies. The cumulative effect has made the compliance officer role a high-demand job in financial services and strained the smaller institutions’ ability to afford and retain qualified and experienced compliance personnel.

What does a typical day look like for compliance officers? They spend a lot of time tracking and analyzing regulatory developments, amending policies and procedures, performing board reporting and serving as the audit liaison. In addition, the officers must:

  • Manage regulatory examinations, audits and additional regulatory reporting
  • Manage relationships with examiners, senior management and department heads
  • Monitor compliance
  • Update risk assessments and ability to repay underwriting
  • Oversee compliance training
  • Implement new controls
  • Manage remedial action, if applicable

The time and resources spent on these activities and the cost to retain senior compliance personnel will continue to increase, adding pressure to an already stressful environment. In the past, senior management tried to sidestep certain products and services to avoid the burden of meeting compliance requirements. Today’s regulatory environment allows much less freedom, and financial institutions need compliance officers to help them use compliance to their advantage. Senior compliance officers can:

  • Develop a good network
  • Use internal and external knowledge and resources to stay on top of requirements
  • Manage time and priorities
  • Leverage consultants and vendors to relieve some of the work
  • Develop a compliance calendar to help allocate time, money and personnel

Regulatory burdens for financial institutions won’t be slowing down anytime soon. Regulatory fatigue, resource challenges and personal liability are expected to increase. While financial institutions still are struggling with TILA-RESPA Integrated Disclosure implementation from October 2015, other complex regulatory changes already are looming on the horizon. Regulations such as ability to repay for open-use credit, consumer reporting, debt collection, Home Mortgage Disclosure Act (HMDA) changes in 2018, Basel III, cybercrime-related information security regulations and a commercial banking version of the HMDA loan application register promise job security for compliance officers.

If you have any questions, consult your BKD advisor.

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