Heightened Banking Regulations Will Continue in 2024: Four Ways to Protect Your Institution

We all witnessed the seismic shifts that rocked the banking industry in 2023, with multiple banks collapsing within a matter of weeks of each other. This shift was largely due to regulatory standards being rigorously enforced, leaving no financial institution untouched. And as we step into 2024, one thing remains crystal clear: Intense banking regulations are here to stay. 

Regulators are now adopting a tougher and more proactive approach to keeping tabs on banks by doing things like conducting surprise reviews of confidential supervisory bank health ratings and, in some cases, issuing downgrades to ensure that banks address lapses in risk management. 

Amidst this intensified scrutiny, institutions of all sizes must brace themselves for the hurdles that lie ahead. But fear not: These challenges present opportunities to not only protect your institution from the consequences of failing to comply with regulations, but also to strengthen your operation for years to come with thoroughness and attention to detail. 

Read on for four strategies you can implement to prepare your financial institution to thrive amidst these heightened standards. 

Tip #1: Show Your Work (a.k.a., Be as Transparent as Humanly Possible)

In the era of heightened banking scrutiny, one of the cardinal rules for safeguarding your institution is to “show your work.” In other words, keep detailed records of every process, procedure, and transaction you make in the year. Transparency and accountability are now the very principles financial institutions’ regulatory compliance stands on. 

How to Stay Transparent to Meet Intent Regulatory Scrutiny 

  1. Keep detailed records: The days of half-baked compliance efforts are long gone. The Office of the Comptroller of the Currency (OCC) now demands a clear and documented trail of how you’ve arrived at your compliance decisions. So, be sure to document every step of your approach to compliance, including comprehensive records of your processes, assessments, and most importantly, the individuals involved. 
  2. Organize and demonstrate your evidence: It’s not enough to go through the motions of compliance. You must provide evidence to show that you’re actually doing it—and doing it right. Regulators are looking for tangible proof that you’ve followed through on your commitments. This means showcasing a well-organized repository of documentation that validates your compliance activities. 
  3. Increased visibility: Regulators expect enhanced visibility into the inner workings of your business. They want to see that your institution is not just ticking boxes, but genuinely committing to regulatory compliance. Keep your records up to date and create key reports and documents with these high standards in mind and the expectation that they will be shared with regulators. 

Incorporating these practices with your institution’s compliance framework will not only satisfy regulatory requirements but also instill confidence in your stakeholders that you’re seriously committed to maintaining the highest standards on their behalf. 

Tip #2: Know Your Numbers (a.k.a., Validate Your Data) 

Gone are the days when merely presenting financial reports was enough. Regulators today demand data validation, or the process of ensuring the accuracy, completeness, and integrity of your financial data, to demonstrate a deeper level of confidence in your data amongst everyone within your institutionfrom the board level to senior risk management. 

Why Data Validation Matters for Banks 

Regulators must be prepared to provide granular insights into how data is collected, processed, and validated. You can’t just show the data is accurate—you need to show how you’ve ensured its accuracy. 

Bank data validation involves rigorous checks, processes, and controls to confirm the reliability of data used for various purposes within a financial institution. This data encompasses customer information, transaction records, financial statements, risk assessments, and more.  

Here’s why data validation matters: 

  1. Data Lineage: Understanding data lineage involves tracing the data’s journey from its source to its usage. This provides assurance that data can be trusted, and any alterations or processes applied to it are well-documented and controlled.  
  2. Accuracy: Validating data for accuracy means ensuring that it faithfully represents the actual information it’s supposed to convey. For example, customer account balances must align with the figures in your bank’s official records. 
  3. Completeness: Data validation checks for any missing or incomplete records and confirms that all required data fields are present. Incomplete data can lead to errors in reports and decision-making. 
  4. Consistency: It’s crucial to verify that data remains consistent across different systems and databases within the institution. Your data should never create conflicts or contradictions for regulators. 
  5. Timeliness: Data validation also guarantees that data is current and reflects the most recent transactions and information, which is critical for making well-informed decisions. 
  6. Integrity: Data integrity checks protect data from unauthorized access, accidental modifications, corruption, or loss. 

Tip #3: Know Your Stuff (a.k.a., Demonstrate Your Expertise) 

Heightened standards mean that you need to demonstrate your expertise convincingly to regulators, whether in meetings or when responding to their requests. A one-page presentation will no longer suffice. Regulators expect detailed, in-depth explanations that leave no room for ambiguity. Your ability to articulate complex processes, risk assessments, and compliance measures with clarity is now a key factor in regulatory interactions. 

Regulators’ Elevated Expectations Are Driven in Part by the Rise of Artificial Intelligence (AI) 

Just as banks have started to harness the power of AI and machine learning (ML) for risk assessment and compliance, bank regulators are also deploying AI-driven tools and analytics. This means regulators can scrutinize your institution’s data and processes with greater precision and speed.  

To stay ahead, you must not only be proficient in your operations, but also understand the role of AI in compliance and risk management. 

If you want to excel in demonstrating your expertise, consider the following strategies: 

  1. Regular Training: Invest in continuous training and development for your staff, ensuring that they are well-versed in the latest regulatory changes and technology trends. A well-informed team is better equipped to explain and showcase your institution’s expertise. 
  2. Simulation Exercises: Conduct regular simulation exercises to test your institution’s response to various regulatory scenarios. These exercises not only prepare your team but also provide practical experience in demonstrating expertise. 
  3. Regulatory Engagement: Relationships always matter in business—and it’s no exception when it comes to regulators. Regularly engage with them to discuss your institution’s practices and demonstrate your commitment to compliance. This proactive approach can build trust and alleviate concerns. 

Tip #4: Get an Experienced Partner to Support You in Regulatory Compliance 

Navigating heightened banking standards can be daunting, but you don’t have to go it alone. Enlisting the help of an experienced partner, like Heitmeyer Consulting, can make a world of difference. 

Why Choose Heitmeyer’s Expertise? 

In an environment where the workload has multiplied many times over and new task types have emerged, establishing robust methodologies, processes, and procedures is more important than ever. Here’s how Heitmeyer’s consulting services can assist you in organizing and executing these tasks efficiently: 

  1. MRA Work as Project Work: We help you tackle MRA (Matters Requiring Attention) work effectively by treating it as a focused project and ensuring that every detail is addressed and resolved. 
  1. Portfolio Projects as Program Work: Managing portfolios of projects, which often arise in response to heightened standards, requires a programmatic approach. Heitmeyer Consulting can help you streamline and manage the complexities of these projects. 
  1. Taking a Proactive Approach: Instead of waiting for regulatory concerns to emerge, we help you take a proactive approach by conducting thorough inventory assessments, identifying potential issues, and addressing them before they become problems. 

Partner with Heitmeyer for Confidence in Meeting Heightened Banking Regulation Standards 

Heightened standards demand a comprehensive and proactive response. With Heitmeyer Consulting as your partner, you can navigate this challenging terrain with confidence and keep your institution well-prepared to meet and exceed regulatory expectations. Get in touch today.