Pub. 5 2015 Issue 3

By Scott Daugherty, Compliance Alliance Compliance – An Opportunity for a Better Business Model D O DD-FRANK TURNED FIVE THIS YEAR AND THESE LAST YEARS HAVE BEEN CHALLENGING FOR BANKS WITH A MYRIAD OF NEW regulations. Dodd-Frank has been lamented as being the downfall of com- munity banks. Last month I posed the question Compliance Burden or Oppor- tunity? This month I would like to talk about compliance opportunity. Over the last several decades banks have seen many changes to how banks operate in various lines of business. Banks have adapted by changing the way we lend money to how we open and handle deposit accounts. Compliance has changed very little over this time; however, the time has come for banks to rethink how they handle compliance. Compliance must come from the top down and be interwoven into the corporate culture of the bank. Compli- ance is and always has been a key area of banks, but in the past few years it has been under more scrutiny. Bank culture has historically devalued compliance and looked at it as keeping the bank out of trouble. That view overlooks the role compliance can have in increas- ing value by allowing the bank to look at opportunities that other banks may view as too risky to consider. Compli- ance should be involved in the bank’s strategic planning to evaluate the risk associated with options the bank is considering during the planning. This is a time that banks can em- brace compliance and position itself for growth. Product development, sales and servicing are often separate from compliance. However, regulatory compliance should be an integral part of those processes from start to finish. Weaving compliance into the fabric of every area of the bank will enable a bank to spot and resolve compliance is- sues before they become a problem. Compliance should be more than static reporting. Compliance should be a process with clear responsibilities and support throughout every business unit. The bank should have a strategic and an action plan for compliance and answer questions such as: • What does the bank want our compliance function to achieve? • What is the mission of the bank’s compliance function? • How can the compliance func- tion enhance and support the bank’s core business? • Is there a way to make the com- pliance function more efficient? Not cost savings but time savings to allow the compliance staff to focus on supporting the bank’s core business units. • Who is responsible for compliance within each business unity? • What is the bank’s tolerance for risk? • Who owns each risk? The bank’s compliance action plan should lead to the development or revi- sion to the enterprise risk management program. Make compliance a proactive part of the bank’s operations rather than just reactionary. Align compliance with the bank’s business priorities to pursue the upside of revenue streams and rec- ognize compliance’s potential impact on enterprise value. An effective compliance program can lead to value creation and preservation to give the bank a competitive advantage and be the differentiator in the market- place. It can also create a framework within the bank to view compliance from both a risk management and a business perspective. This will help align the bank’s risk management efforts with its overall business priorities to ensure that the proper amount of effort is exerted on compliance risk. The bank should allocate compliance activities and resources according to the importance of each activity to enterprise value. In short, as bankers we must treat this new regulatory environment as an opportunity and meet it head on like we have every other change or obstacle that faces the industry. Otherwise we can take our ball and go home and sell our community banks. I think this is a chance to rethink how we perform the compliance function, make it more efficient and make the bank stronger and therefore in a much better position to take advantage of opportunities to increase profits and efficiency. w Scott Daugherty is President & General Counsel of Compliance Alliance. Owned by 24 State Bankers Associations, Compliance Alliance monitors the needs of bankers to create, update and continually provide the most sought-after banking regulation resources in the industry. To learn how to put Compliance Alliance to work for your bank, call (888) 353-3933, visit complianceal- liance.com, or email info@compliancealliance.com. 16 www.azbankers.org