A notable increase in concerns over risk management and regulatory compliance issues headlines key challenges facing U.S. banks, credit unions and other lenders, according to the results of the 2023 Regulatory & Risk Management Indicator survey conducted by Wolters Kluwer Compliance Solutions. The 2023 Indicator Main Score rose from an index level of 94 in the 2022 survey results to 119 this year, a 25-point index increase.

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. 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 Advisor, 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. “These developments pose major implementation challenges even for an industry that consistently demonstrates a high level of resilience and flexibility in dealing with regulatory change,” Burniston noted.

Respondents rank the small business lending rules foremost among their concerns, with 74% expressing it as a high or moderate worry, followed by 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.

Respondents also perceive the scrutiny of fair lending practices to have increased or at least remained the same, with 48% citing a considerable or slight increase in scrutiny, an eight percent uptick from last year’s survey.

The Indicator underscores the increasing role of technology in managing workflows, recordkeeping, and regulatory change management. A notable 69% of respondents identify technology as a crucial factor in addressing these challenges, marking a seven percent increase from the 2022 survey. Speed (44%) and analysis (38%) are identified as the most important aspects of automation.

Looking ahead, respondents anticipate increased investment in managing new or changed regulatory content (57%), updating compliance policies and procedures (45%), and improving quality assurance capabilities (41%) in their compliance management systems.

Environmental factors impacting enterprise risk planning include heightened concerns about interest rate increases (74%) and ransomware attacks (65%). Inflation worries (54%) and recession fears (47%) have declined somewhat from the previous year.

Survey respondents also express skepticism about a reduction in regulatory burdens over the next two years, with 58% considering it very unlikely and 17% somewhat unlikely.

The survey was conducted from July 20 to September 11, 2023. Now in its eleventh year, the Indicator remains a vital tool for gauging the pulse of the U.S. banking industry, offering insights into regulatory and risk concerns, anticipated impacts, and ongoing risk management efforts.

Wolters Kluwer regulatory compliance experts Tim Burniston and Elaine Duffus will conduct a webinar Thursday, December 14 to delve deeper into this year’s survey results and their implications for bank risk management and regulatory compliance practices.