Kate Barr began her banking career 13 years ago at a start-up institution, where she had to do anything and everything.

It turned out to be great training for her future as a compliance officer.

Ms. Barr, now senior vice president at Riverside Bank, a $160 million- asset institution in Minneapolis, was slated to give the opening address Sunday at the American Bankers Association's annual regulatory compliance conference in Boston. The conference continues through Wednesday.

"Doing compliance well requires you to know how the bank runs," Ms. Barr said in an interview. "We are involved in every area of the bank."

A sea change has occurred in compliance. What used to be considered nothing more than a nuisance has become critical to consummating mergers and avoiding big fines. Today, chief executives realize that ignoring compliance is inviting disaster.

BankAmerica Corp.'s Texas unit has packed its compliance program with power.

"Only I, as CEO, can overrule the compliance officer," BofA Texas chief Ron Biagi said in a speech scheduled to be given Sunday at the ABA conference."In reality, there is very little in my bank that does not concern compliance."

The best compliance officers understand the bank's business, Mr. Biagi said, and work with senior managers to enforce Washington's edicts while maintaining an eye on the bottom line.

"My compliance officer must protect the management team's backside while the team stays focused on the business initiatives," Mr. Biagi's text said. "The ability to constantly pursue compliance issues, while maintaining a professional relationship of trust and support with line management, may be the single most important attribute a compliance officer can command."

The compliance officer should anticipate and identify problems, then delegate the countermeasures to others, Mr. Biagi planned to say.

"Compliance is every employee's job," he said.

Ms. Barr agreed, adding that Riverside Bank is installing an early warning system to detect violations before they grow into serious problems.

Once a quarter, Riverside randomly tests compliance in various parts of the bank.

For example, to measure property lending, Ms. Barr pulled a number of real estate loans to see if all applicable rules had been followed. And to gauge compliance with the Expedited Funds Availability Act, Riverside inspected 20 deposit holds to see whether the check had been held the proper amount of time.

While most small banks are starting to learn more about such monitoring, most big banks have been using such procedures for about two years, Ms. Barr said.

"It's too risky to let it go an entire year or until the next exam," she said.

Compliance monitoring also highlights where bank employees need more training, Ms. Barr said.

Unlike the self-testing banks are doing on fair lending, Ms. Barr said, she doesn't worry about examiners' using any negative results against her bank.

In fact, examiners have praised banks using monitoring because it flags problems early on, she said. "If you can catch problems every quarter, you can fix them," Ms. Barr said.

Although regulatory relief legislation is being batted around in Congress, neither Ms. Barr nor Mr. Biagi thought compliance would get easier.

"Regulations are tough now, and they will probably get tougher," Mr. Biagi said in his prepared remarks.

New rules governing uninsured investment products, such as mutual funds and derivatives, will complicate compliance, Ms. Barr predicted. "It's a new area for banks and a new area for regulators," she said.

Complying with the Community Reinvestment Act and fair-lending rules will continue to be difficult, both bankers said. New compliance questions also are bound to arise as interstate branching spreads.

A myriad of other issues, such as new technology, possible consolidation of regulatory agencies, and growing nonbank competition are likely to add to compliance officers' work load.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.