Credit Union Regulations & Compliance

Is the Compliance Burden Driving your Credit Union to Consider a Merger?

If you’re a leader in your credit union, compliance is certainly not a new issue. The compliance burden of today’s market is significant and costly; nor will it go away any time soon. If you feel like you once spent 80 percent of your time on member issues, and now you spend 80 percent of your time on compliance, you are not alone.

Although the credit union compliance burden is a major line item for each institution’s expenditures, smaller organizations are feeling the impacts of today’s regulations to a far greater—and sometimes harmful—extent than their larger brethren. Credit union compliance has driven several small institutions to consider teaming up for the greater good of the bottom line. If this includes you, here are some things to think about:

Opportunity Costs

Although spending ample amounts of time on regulatory compliance is not ideal, it’s simply a cost of doing business. That said, regulations and laws don’t discriminate or adjust for organizations depending on their size. If you’re operating a small credit union with few internal resources to assist with the regulatory oversight, you’re likely feeling the effects of the regulations on a far greater scale than your larger credit union counterparts.

Regarding regulatory costs, the economics are simple: If your small organization is trying to tread water with the costly burden of credit union compliance and regulatory issues, a merger will increase the size of your staff and boost the manpower pool your organization needs to address credit union compliance requirements.

Cyber Security

Almost everything in today’s economy can be done online, but with added convenience often comes added risk. The cyber security exam is in place for good reason; after all, you, as a decision maker in your financial organization, know the importance of securing your customers’ confidential information. Preventing a costly breach can be burdensome on your budget and on your staff, but with an average of $136,000 reportedly spent on penetration testing and data security measures in early 2015, the financial impact of these preventive measures is obviously felt more by smaller firms who don’t have a large member base across which to spread this business expense.

If you’re uncertain about your organization’s cyber security preparedness, consider using the FFIEC’s Cybersecurity Assessment Tool. It can help you understand what your credit union needs to do to ensure compliance, and it’s intended to provide you with necessary teaching tools to educate your staff properly.

Increased Responsibilities and Liabilities

While financial institutions will always be under intense scrutiny, today’s credit union compliance requirements are creating substantial concern regarding manpower and financial resources. Smaller organizations may find themselves more susceptible to compliance burdens simply as a result of the smaller number of staff available to mitigate potential issues.

CUNA’s recent announcement that credit union compliance costs hit $6.6B in 2014 verifies that, for most credit unions, the bottom line is already strained. Adding greater responsibilities to the existing structure becomes increasingly problematic. As the CEO, executives, and directors do their part to ensure the success of the organization, it’s imperative that responsibilities are properly evaluated and evenly distributed to ensure due diligence.