Rule Keepers Gain Stature as Cost of Missteps Rises

Article excerpt

WASHINGTON -- The compliance department used to be a parking place for aging bank officers nearing retirement.

Today, compliance is one of the most challenging departments in banks of all sizes.

"The stature of compliance people has risen dramatically in recent years," said Michael D. Maher, vice president and manager of regulatory compliance at First Bank System Inc. in Minneapolis. "Now management looks for the best person for the job. They are relying on us as advisers. Compliance is truly becoming a profession."

Word from On High

Today, bank compliance officers have more visibility, credibility, and authority. That's occurred, in part, because regulators have demanded it.

Stephen M. Cross, the Comptroller of the Currency's deputy for compliance management, was asked recently by a group of bankers what the biggest problem is at banks with regulatory problems.

"Compliance is not taken seriously at these banks," he said. "Compliance is not integrated into the basic operations of the bank, and compliance is not viewed as a fast-track career."

Compliance is celebrating its silver anniversary this year. The Truth-in-Lending and Fair Housing acts were passed in 1968, creating the cornerstones of compliance: consumer disclosure and antidiscrimination.

Rules Run the Gamut

From 1968 through 1977, the government issued regulations covering everything from flood protection and electronic funds transfer to equal credit and community reinvestment. The next decade was relatively quiet; deregulation prevailed, and compliance officers were ignored.

But lax compliance brought on a backlash, and over the past five years Congress has battered banks with new laws and regulations.

The Competitive Equality Banking Act of 1987, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, and the Federal Deposit Insurance Corporation Improvement Act of 1991 changed the compliance landscape by spawning scores of new regulations. As the rules changed -- and become much more specific -- the liability for breaking them rose.

Cost-Saving Role

As the cost of noncompliance soars, so does respect for compliance officers. The people who figure out and implement new regulations protect the institution from huge costs.

"In the early days, compliance officers were little Don Quixotes. They spent a lot of time tilting at windmills," said Robert P. Chamness, executive vice president and general counsel at CFI Proservices Inc., a Portland, Ore., company that Provides software and compliance assistance to financial institutions. "Today compliance has taken center stage."

Compliance is so important because so much depends on it.

A bank that fails to follow regulations, risks trouble with regulators, customers, and shareholders. Banks that do not abide by the rules face fines, lawsuits, and a cold shoulder from investors.

Key to Acquisitions

Banks that want to expand must have high compliance ratings or regulators will not permit acquisitions. Ditto for banks that want to be bought.

With increased importance, compliance is no longer a one-man job that everyone else in the bank could ignore.

In fact, during exams, regulators want to hear from top management about what the bank is doing to ensure compliance. Examiners are even comparing how much the compliance officer is being paid to the chief executive's salary.

This has produced compliance epiphanies for many top managers.

The moment of truth at Chase Manhattan Bank came two years ago during the bank's first Community Reinvestment Act exam since ratings became public, according to Patricia L. Alberto, a Chase vice president. …