RSSThe rate of federal enforcement activity against financial institutions in the third quarter of 2016 dropped below 7 percent for the first time since 2013, according to industry watchdog organization Continuity. The company’s Banking Compliance Index (BCI) measures and analyzes the volume of regulatory change impacting financial institutions using data from the consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Reserve, the National Credit Union Association, the Office of the Comptroller of the Currency, and other agencies. The analysis is done using an average size institution of $350 million. The report can be found here.
According to the report, there are a number of potential explanations for the drop in third quarter enforcement actions. One is a possible reluctance to initiate new actions before a presidential election, due to the uncertainty regarding policy changes in the near future. In addition, regulators now have fewer financial institutions to oversee, with 290 banks having merged, consolidated or closed since this time last year. Finally, in the third quarter, data shows that regulators focused on larger, more complex institutions that consume greater supervision and enforcement resources, leaving fewer resources focused on smaller institutions.
Another possible explanation for the enforcement decline might stem from external pressures of judicial actions involving the Consumer Financial Protection Bureau. In addition to forcing an inward focus at the Bureau, the criticisms and litigation may have caused other agencies to proceed more cautiously in enforcement actions.
However, the report showed that despite this downturn in enforcement, the average financial institution will require 1.63 additional full-time employee equivalents to deal with the regulatory changes introduced between July and September of 2016. This represents an additional $39,634 cost burden for the quarter, bringing the previous 12 months’ cost figure to $150,676 for an average financial institution just to keep up with the changing regulatory environment.
“Although significantly fewer enforcement actions were initiated in this past quarter, the number of items within each enforcement action jumped in Q3 by 250 percent above the four-year average,” said a Continuity representative. “These complex activities pose a heavy compliance burden on institutions, adding to the already high costs of keeping up with new regulations.”
Interestingly, the CFPB seems to be the exception to the rule. CFPB enforcement actions nearly doubled in the third quarter over the first two quarters of 2016 and are on a pace to top the 2014 and 2015 totals.
