Overcoming Upcoming Regulatory Challenges With Fintech
Look outside of your existing technology strategies and into the wider market for support.
The banking industry has been subjected to significant forces over the past year – high inflation, interest rate volatility, lingering effects of the pandemic, events in the crypto asset markets and continual beats of a recession on the horizon. If that was not enough, credit unions are facing heightened and burdensome regulations this year:
- Section 1071, which recently came into effect on March 31, will require financial institutions to collect and report data on lending to small businesses, with a particular emphasis on data related to race, ethnicity and gender. Credit unions will need to ensure that they have systems in place to collect the required data accurately and securely, as well as to report it to regulators in a timely manner.
- Secure Act 2.0, signed into law in December 2022, brought significant changes to retirement savings rules in the United States. One provision will increase the age (from 72 to 73) at which individuals must take required minimum distributions (RMDs) from their retirement accounts. Credit unions should review their current retirement plan options and educate their staff and communicate the changes to members.
- The CFPB is cracking down on overdraft fees this year, shifting responsibility onto financial institutions. Credit unions should review their policies and procedures for assessing member eligibility for overdraft protection and charging fees, and ensure that they are providing clear and transparent disclosures to their members about the fees associated with overdraft protection.
The ever-evolving compliance landscape makes it nearly impossible for credit unions to keep pace. Many successful credit unions are responding by building a partner ecosystem with strategic fintechs that can help them stay up to date with changes and regulations, and explore how they can meet the new “digital consumer” on their device of choice. Partnering with a strong fintech provider opens up plenty of opportunities for credit unions to continually innovate and serve their members and community.
Historically, credit unions have approached compliance with manual processes that were time consuming, complex and often redundant. For instance, reading though legal reviews and policies, updating consumer documents to match members’ appropriate state regulations and keeping up with the evolving landscape, external threats and new rules is often all done manually. According to Thomson Reuters, the number of regulatory changes a financial institution must deal with every day has increased from 10 in 2004 to nearly 200 today. That’s one change every 12 minutes. Credit unions using manual processes to interpret each change simply cannot keep up.
The right strategic partner can handle all regulatory processes in real-time through the cloud, i.e., cloud-based compliance. Compliance through the cloud embeds compliance into the credit union’s existing loan origination and deposit origination systems; it also allows connection to extended fintech ecosystems as credit unions adapt.
Cloud-based compliance technology is elastic and uses API connectivity to manage or augment business processes, and monitor and update documentation in real time. This streamlines and automates the compliance and regulatory process, reduces errors and improves agility, allowing credit unions to focus on building and nurturing member relationships.
Cloud-based technology also helps credit unions in their initial engagement using mobile-first solutions. Members will look elsewhere if they can’t complete a task from their mobile device with speed, clarity and accuracy. According to Statistica, more than 43% of U.S. mobile banking users would switch their primary financial institution if they were unhappy with their mobile banking offering. While several banking apps come with features that help make banking easier, the documentation phase is still built for the branch with PDFs and “pinch and zoom” experiences.
A fintech partner can help deliver a uniform and seamless mobile banking experience in real time to members from beginning to end, including compliance content designed for mobility with a direct, user-friendly interface that addresses members’ expectations of convenience and speed. This will help credit unions maximize their mobile app and tailor content for consumer consumption to eliminate member confusion.
It’s crucial that credit unions look for opportunities to enhance the digital journey in compliance documentation. This is where each transaction comes to fruition and can leave a lasting impression on the member, moreover, increasing the likelihood of them becoming a long-term member. It should be seamless, convenient, quick and fit for the mobile, tech savvy user.
It’s time credit unions shift their approach and view compliance as an integrated part of the entire member journey. This may require them to look outside of their existing technology strategies and into the wider market for support. Those that do will be better equipped to navigate the evolving regulatory landscape and remain compliant while delivering a seamless member experience.
Chris Appie President Compliance Solutions at TruStage Madison, Wis.