Residential Magazine

Lender Worries Persist Over Risks and Compliance

A national survey shows rising concerns with cybersecurity and other regulatory issues

By Timothy Burniston

Apprehension about regulatory compliance and risk management remains high for U.S. lenders, according to a nationwide survey. A composite indicator score summarizing several factors in the survey — including cybersecurity, compliance risk and regulatory fines — rose on a year-over-year basis.

More than 700 bank directors and senior executives, as well as compliance and risk professionals, responded to the survey, which was conducted from Aug. 7 to Sept. 3, 2019, for financial-services company Wolters Kluwer. Still, participants indicated the highest confidence levels in the survey’s seven-year history regarding their ability to maintain compliance, keep track of changing regulations and demonstrate compliance to regulators. Mortgage originators can look to the survey as a way to gain insight into how lenders view the industry’s regulatory and risk landscape.

Mounting anxiety

The survey’s main indicator score — a composite look at the survey data — was 95, reflecting a 10-point increase over 2018. The score is calculated from data regarding three “environmental factors” that represent the number of new federal regulations, the number of enforcement actions and the total dollar volume of fines imposed on banks and credit unions over the preceding 12 months. These environmental factors are then grouped together with seven other indices.

Of the three environmental-factor indices, decreases in the number of new regulations and enforcement actions from the prior year’s results were offset by a higher level of fines imposed by regulatory agencies in 2019. Concerns about managing Home Mortgage Disclosure Act (HMDA) obligations jumped significantly — from 21% of respondents in 2018 to 35% in 2019 — and were related in particular to the ability to analyze newly collected HMDA data.

Concerns about reporting the expanded data to regulators increased significantly — from 15% in 2018 to 40% in 2019. Survey participants also worried about training staff to manage HMDA data, with a 44% affirmation rate in the current survey compared with 31% a year earlier. From a risk-management perspective, cybersecurity continued to rank as the top risk as 78% of respondents anticipated it will receive escalated priority over the next 12 months, followed by compliance risk at 47% and credit risk at 45%.

Responses regarding the level of concern about compliance and overall risk trended positively but at the same time remained relatively high. Participants indicated more confidence in their ability to maintain compliance, keep track of changing regulations and demonstrate compliance to regulators, with results reaching record-high confidence levels. More than 50% of respondents, however, still characterized their overall concern levels as 7 or higher on a scale of 1 to 10, reinforcing the reality that regulatory-compliance and risk-management issues continue to pose significant challenges.

With regard to effective practices for complying with regulations, survey participants scored the use of manual compliance processes, rather than automated ones, as their top obstacle at 47%. Despite this level of concern, only 26% believe their institution will increase investment in automation in the coming year. Inadequate staffing was the second-most reported obstacle (45%) to implementing an effective compliance program. And 44% of respondents indicated having too many competing business priorities as a major impediment to implementing an effective compliance program.

The survey also asked questions to gauge the perceived level of fair-lending examination scrutiny. Among respondents, 28% indicated they noticed a “slight increase” from the previous year (four percentage points higher than 2018), but only 13% said they noticed a “considerable increase” in examiner scrutiny, compared with 19% a year earlier. Those surveyed said they felt that maintaining and proving compliance to regulators often seems to be a moving target.

Challenges ahead

The survey results bring a formidable range of pressing risk- and regulatory-compliance challenges into clear focus for 2020. Topping the list, regardless of institution size, is the challenge of managing and implementing regulatory requirements when it comes to residential mortgage regulations.

Other key issues cited include keeping current with changing regulations; complying with the forthcoming Current Expected Credit Loss accounting standards; deposit account regulations; and compliance-program management. Survey participants also expressed a high level of concern about their ability to stay on top of banking requirements and standards, fair-lending laws and regulations, new Uniform Residential Loan Application forms and, to a slightly lesser degree, state regulatory requirements.

Looking forward, economic factors that institutions are monitoring as potential concerns include interest rate fluctuations (mentioned by 87% of respondents), data-privacy issues (85%) and recession fears (76%). Only 22% of respondents view regulatory relief over the next two years as either very likely (3%) or somewhat likely (19%), a drop from 38% who viewed regulatory relief as very likely (15%) or somewhat likely (23%) in the 2018 survey.

Despite discussion during the past several years about deregulatory actions, the survey results show little expectation for a “lighter touch” by regulators. Respondents for the most part do not expect to see a measurable reduction in regulatory burden, with only 3% indicating they noticed a decline in examination scrutiny. Forty-three percent noticed no change, a six-point increase from 2018.

When asked about enhancing elements of their compliance-management systems, 48% of respondents anticipate higher future investments in strengthening their risk-assessment capabilities. That was followed by updating compliance policies and procedures (47%), and expanding compliance-control testing processes (43%).

• • •

Although the recent pace of new regulations has slowed significantly compared to the years immediately following the passage of the Dodd-Frank Act, the amount of work required to effectively manage compliance and risk responsibilities has not declined. Clearly, there are continuing demands on compliance professionals to help keep their institutions compliant, and to address the tremendous range of regulatory and risk-management issues impacting their organizations.


  • Timothy Burniston

    Timothy R. Burniston is senior adviser of regulatory strategy for Wolters Kluwer’s compliance solutions business, working directly with compliance and risk-management executives to help them more effectively navigate an increasingly complex regulatory environment. For more information, visit

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