Banks recognize that regulatory compliance is a cost of doing business. Many decisions on how extensively to comply are steered by budgetary concerns.

The cost of staff salary and training combined with the cost of compliance software or services, consulting fees and board meetings, and compliance can become steep very quickly.

Take fair-lending compliance as an example of a regulatory challenge. This one area encompasses many subregulations such as the Home Mortgage Disclosure Act, the Community Reinvestment Act and Truth in Lending (Reg Z).

Dealing with this one subset of regulations, a typical institution will have three to five employees for every 100,000 applications. These employees will have responsibilities ranging from policies and procedures to data collection and submission, analysis and review and, finally, assessment and adjustment.

Each regulation is like an iceberg — the tip of it is generally 10%-20% of the overall scope. For this reason, compliance professionals will generally rely on third-party companies for consulting and software to deal with many of the day-to-day complexities of regulatory compliance.

Drilling down one layer deeper into one of the subregulations, HMDA, the workload and cost of just this one tiny piece of the compliance puzzle can be tremendous. For HMDA compliance, data must be extracted from the institution's loan origination system, a process usually requiring help from the IT team. The data will then be loaded into a HMDA software package to be edit-checked and corrected, geocoded to compliance-grade levels, audited by internal auditors and finally submitted each year to the government for examination and review.

The institution will also want to run its own reports and analyses for a self-assessment.

It's easy, when faced with the monumental and intimidating costs and requirements of maintaining compliance, to lose sight of this crucial fact: compliance failure can do exponentially more damage to an institution than the initial budgetary hit that comes from a strong compliance stance.

John A. Woloshen is executive vice president and chief operating officer of RATA Associates, a provider of HMDA/CRA data compliance software and services for financial institutions.

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