It is a sad commentary for any industry that the area of its business that deals with complying with the rules and regulations established by the government is growing faster than the industry itself. This is certainly the case in the financial services industry, particularly in banking. Complying with the laws and regulations governing banks and bankers has become a business itself. Bank compliance is a growth industry. The complex language of the regulations is unintelligible. Even when they are written in clear English, the government's interpretation of the words is often widely different from the clear English meaning. Moreover, the regulations and the interpretation of the regulations is constantly in flux.
If asked, a banker would probably say that either the Community Reinvestment Act and Federal Reserve Board's Regulation BB or the Real Estate Settlement Procedures Act and HUD's Regulation X create the greatest problems. If the banker has just read the proposed privacy regulation, that new rule might be the answer. Certainly, all the laws and regulations are cumbersome--some more than others. But the most frequent and costly compliance errors, and the cost burden of complying, come not from a misunderstanding of the regulations, but from the process that most banks use in complying with the regulations; in particular, the process of creating and documenting new account relationships on both the loan and the deposit side of the bank.
Most banks use some form of an automated system or systems to prepare new deposit accounts and loan disclosures. These are generally referred to as platform automation or document preparation systems. After a deposit or loan account is opened on the platform automation system, the account and customer is then transferred to the bank's core automation system, where it is processed and accounted for. There are three fundamental problems inherent to this situation:
* The platform automation system and the core processing system operate on different databases.
* The core processing system has the flexibility to handle more complex accounts than the platform automation system has the capability to describe.
* The transfer of information from the core processing system to the platform automation system and from the platform automation system to the core processing system is primarily manual.
Some banks are operating on several platform automation systems. There may be one system for deposit accounts and one system for loans. Or worse, there may be one system for deposit accounts, one for consumer loans, one for real estate secured loans, and one for commercial loans. There may even be more. To further complicate matters, only a limited number of employees of the bank have access to each system and few have access to all of them. The number of compliance errors in opening a loan or deposit increases exponentially with the linear increase in the number of different automation systems that deal with the transaction. The ideal is a single automation system that performs everything from the moment the customer makes an application until the account is closed or the loan paid. Multiple systems create multiple problems.
My department receives 7,000 to 10,000 telephone calls every month from bankers with compliance issues. Many of those calls are concerning compliance violations that have occurred. Of those occurrences, the greatest number and most costly violations are the result of the bank using different systems to open and document an account, then to process the account after it is opened.
Generally, bankers consider their bank's database in terms of customers and customer information. What is the demographic information that the bank has about a customer, his family, and other relationships? What accounts does the customer have and what are the balances in those accounts? Certainly …