Consultant JoAnn Barefoot says more banks than ever are bringing in outsiders to help with compliance work.
Phones at her consulting firm - industry leader Barefoot, Marrinan & Associates of Columbus, Ohio - are ringing off the hook, she said, and she doesn't expect them to stop anytime soon.
"Fasten your seatbelts," she said. "The whole issue is going to mushroom in the next year or two."
But some bank compliance officers - mainly those at large institutions - see a different trend. They say the recent compliance outsourcing boom is waning because banks are realizing the benefits of a hands-on approach.
Still no one disputes that banks everywhere are at least talking about letting others take on some of their compliance responsibilities.
Some use outside firms only for help with occasional work overloads. Others look for expertise they are missing. A few even give overall responsibilities to consultants.
Most compliance specialists agree that a balance of internal expertise and external help provides the best results. And they say banks should definitely not let outsiders run every aspect of their compliance programs.
Nevertheless, some banks, usually small ones, do just that, said Wayne Barnes, senior consultant at Louisville, Ky.-based Professional Bank Services.
"It's not as rare as it should be," Mr. Barnes said. "Many banks think, 'We'll wait and see what the examiners say we should do, and then design our program.'"
That approach is risky at best, according to Margaret Causby, senior vice president at $276 million-asset Old Point National Bank, Hampton, Va. She said things can fall between the cracks if there are no on-site controls - such as a liaison between the bank and the consulting firm, or well-trained bank employees.
"No matter how big or good the (outsourcing) companies are, if you're not living in the banks day to day, it's very difficult to run a compliance program," Ms. Causby said. "It's such a changing environment. You can't know what's going on. You can't fully understand the bank's philosophy."
Kathy Curtis, assistant vice president and compliance officer at $90 million-asset Century National Bank in Washington, said many small banks have turned to outside sources like newsletters and software products for help, rather than handing complete responsibility to an outsourcer. Many times, she said, acquiring knowledge is as helpful as bringing in more people.
Still, just getting more helping hands in the office is often the top priority for the small banks.
Not so at the bigger banks. Kate Barr, last year's chairman of the American Bankers Association's compliance committee, said bigger banks outsource to save money.
"For small banks ... it takes a lot of burden off of the compliance officers," said Ms. Barr, senior vice president and compliance officer at $141 million-asset Riverside Bank, Minneapolis. "At large banks, its more of an economic trend. Banks can (hire temporary workers to) implement new reporting procedures, for example, and not have the huge staff costs."
Beyond that, big banks get nervous, said James T. Brankin, senior compliance officer at First National Bank of Chicago.
"In terms of giving up the whole function, I don't think seriously about that," he said. "I don't think many other banks do either."
Merging banks often see a clear need to outsource, said Michael D. Maher, vice president and regulatory compliance manager at First Bank System Inc., Minneapolis.
Mr. Maher said his bank's potential merger with First Interstate Bancorp has forced his department to look elsewhere for help. He said new issues like Office of Foreign Asset Control regulations also cause banks to call on consulting firms. And by bringing in outsourcing firms, banks can avoid hiring full-time employees who may not be needed in a few months.
The ability to choose which issues a bank wants consultants to handle translates into savings in the long run, according to Matt Schriner, regulatory compliance manager at McGladrey & Pullen, a Minneapolis accounting firm.
But some outsourcing services and products are simply too expensive for small banks, Old Point's Ms. Causby said. The high up-front cost of software packages, training items, and other work-savers can eclipse any potential long-term benefits.
When they do step up their computer systems, small banks tend to use generic, forms-based software packages, Century National Bank's Ms. Curtis said.
Large banks sometimes go a step further, opting for completely customized systems rather than a generic package.
But Diane Casey, national director of financial institutions regulatory issues at Grant Thornton in Washington, said having bank employees rely too much on technological help for compliance can be every bit as dangerous as handing over responsibilities to outsiders.
"Technology is still just a tool," Ms. Casey said. "Your employees have to have the basic idea of the requirements. If you don't know how to use it, you could end up with more problems."
