WASHINGTON -- The compliance department used to be a parking place for aging bank officers nearing retirement.
Today, compliance is one of the most challenging departments in banks of all sizes.
"The stature of compliance people has risen dramatically in recent years," said Michael D. Maher, vice president and manager of regulatory compliance at First Bank System Inc. in Minneapolis. "Now management looks for the best person for the job. They are relying on us as advisers. Compliance is truly becoming a profession."
Word from On High
Today, bank compliance officers have more visibility, credibility, and authority. That's occurred, in part, because regulators have demanded it.
Stephen M. Cross, the Comptroller of the Currency's deputy for compliance management, was asked recently by a group of bankers what the biggest problem is at banks with regulatory problems.
"Compliance is not taken seriously at these banks," he said. "Compliance is not integrated into the basic operations of the bank, and compliance is not viewed as a fast-track career."
Compliance is celebrating its silver anniversary this year. The Truth-in-Lending and Fair Housing acts were passed in 1968, creating the cornerstones of compliance: consumer disclosure and antidiscrimination.
Rules Run the Gamut
From 1968 through 1977, the government issued regulations covering everything from flood protection and electronic funds transfer to equal credit and community reinvestment. The next decade was relatively quiet; deregulation prevailed, and compliance officers were ignored.
But lax compliance brought on a backlash, and over the past five years Congress has battered banks with new laws and regulations.
The Competitive Equality Banking Act of 1987, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, and the Federal Deposit Insurance Corporation Improvement Act of 1991 changed the compliance landscape by spawning scores of new regulations. As the rules changed -- and become much more specific -- the liability for breaking them rose.
As the cost of noncompliance soars, so does respect for compliance officers. The people who figure out and implement new regulations protect the institution from huge costs.
"In the early days, compliance officers were little Don Quixotes. They spent a lot of time tilting at windmills," said Robert P. Chamness, executive vice president and general counsel at CFI Proservices Inc., a Portland, Ore., company that Provides software and compliance assistance to financial institutions. "Today compliance has taken center stage."
Compliance is so important because so much depends on it.
A bank that fails to follow regulations, risks trouble with regulators, customers, and shareholders. Banks that do not abide by the rules face fines, lawsuits, and a cold shoulder from investors.
Key to Acquisitions
Banks that want to expand must have high compliance ratings or regulators will not permit acquisitions. Ditto for banks that want to be bought.
With increased importance, compliance is no longer a one-man job that everyone else in the bank could ignore.
In fact, during exams, regulators want to hear from top management about what the bank is doing to ensure compliance. Examiners are even comparing how much the compliance officer is being paid to the chief executive's salary.
This has produced compliance epiphanies for many top managers.
The moment of truth at Chase Manhattan Bank came two years ago during the bank's first Community Reinvestment Act exam since ratings became public, according to Patricia L. Alberto, a Chase vice president.
Integral to Operations
"Compliance is not an adjunct. It's part of everything we do," she said.
Susan K. Martoia, an assistant vice president with Banc One Corp., said the acquisitive Columbus, Ohio, company is so concerned about compliance that employees who go out of their way to follow the rules get bonuses and pay raises.
A president of a Banc One bank was fired because he did not take compliance seriously. "That's been a great example for the rest of our CEOs," she said.
Compliance is becoming more centralized and standardized at larger banks. Mr. Maher said First Bank handles regulatory compliance for 208 subsidiary bank branches from headquarters. "That way we can focus resources and leverage our knowledge," he said.
Chase's domestic compliance force, 26-people strong, has specialists who concentrate on fair lending, fighting money laundering, and CRA.
Responsibilities Farmed Out
But at smaller banks, there are not enough bodies to centralize compliance.
Kate S. Barr handles compliance at Riverside Bank, a $100 million-asset bank in Minneapolis. She also is a branch manager and the head of marketing.
Riverside has a compliance committee that farms compliance responsibilities to the people directly involved. For example, real estate lenders are in charge of complying with the Real Estate Settlements and Procedures Act.
"That's how it's all going to end up," Ms. Barr said. "It's the only option."
Certification Seen as a Boost to Officers' Credibility
WASHINGTON -- With compliance becoming a priority, a new breed is emerging - the certified compliance officer.
"Certification gives credence and some stature to compliance officers," said Carol Pixley, vice president and compliance officer for first State Bank to go into this field, it is another feather in your cap and looks good on your resume."
Both the Institute of Certified Bankers, sponsored by the American Bankers Association, and the Bank Administration Institute started certification programs for compliance officers in 1990.
The ABA program requires three years of work experience in compliance, 80 hours of training over five years, and a letter of recommendation from a senior bank officer. When those requirements have been satisfied, a candidate may take the exam. The ABA offers the exam each year in April and October.
Fewer Hours Required by BAI
The BAI program has the same requirements except candidates need just 25 hours of training. The BAI also tests candidates twice a year.
Both programs require an average of 20 hours of continuing education each year to maintain certification. At the ABA, bankers are recertified every two years for a $75 charge. If they have not met the continuing education requirement, they can take the test again. Recertification at the BAI occurs every three years.
To date, the BAI has certified 600 compliance officers and the ABA 184. But those totals consist mostly of compliance officers grandfathered in. The BAU counts 500 grandfathered compliance officers, while the ABA grandfathered 152. The ABA requires eight years of experience in compliance, and 80 hours of education within five years for its grandfathered candidates.
Leaders in Field Spotlighted
Enrollment in both programs is growing. The BAI gave the test to 90 bankers in June. Eight bankers passed the ABA test in April; 17 more will take it in October.
Grandfathering immediately gave the certificates a high profile because it connected the degree with the leaders in the field, according to Jack Adams, corporate compliance officer for CoreStates Bank and chairman of ICB's advisory board.