December 2016 - Getting Serious About Diversity

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34 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ORIGINATION THE LATEST Enforcement Actions See Steep Drop in Q3 The activities have dipped below 7 percent for the first time since 2013. A ccording to Continu- ity's Banking Compli- ance Index (BCI) for the third quarter of 2016, enforcement actions against financial institutions fell to their lowest level in the three-year history of the BCI. The rate of enforcement activity in Q 3 was 6.54 percent, the first time it has been below 7 percent since the BCI was launched in 2013. The uncertainty regarding the presidential election and what effect the new president's policies will have on the financial industry is one possible explanation for the drop-off in enforcement actions. Another possible explanation is consolidation within the industry; in the last year, 290 banks have either merged with other institu - tions or consolidated (or closed), leaving regulators with fewer financial institutions to oversee. According to Continuity, regula - tors often focused on the larger institutions in Q 3, which required greater enforcement resources and supervision—leaving regula - tors with fewer resources for the smaller institutions. Still another factor in the decline in enforcement actions, Continuity reported, may stem from criticism and litigation involving the Consumer Financial Protection Bureau (CFPB)'s enforcement actions. Continuity says regulators may be exercising more caution when determining whether or not to hand out pun - ishment to a financial institution. On October 11, a federal appeals court ruled that the CFPB's struc- ture was "unconstitutional" and removed a $109 million penalty the CFPB handed down to New Jersey-based mortgage lender PHH Corp. in what could turn out to be a landmark case, if the decision holds up. "Despite the dip in enforce - ment actions this past quarter, it would be unwise for financial institutions to become compla- cent," noted Pam Perdue, EVP and Chief Regulatory Officer at Continuity. "Historically, periods of lower enforcement activity around presidential election cycles are followed by increased scru - tiny, and the actions taken against large entities always trickle down to smaller institutions." The BCI reported that despite the substantial drop in enforce- ment activity against financial institutions, the average institu- tion would require an additional 1.63 full-time employee equivalents to handle regulatory changes that occurred during the third quarter. This calculated to an additional cost of $39,654 for the quarter, bringing the 12-month total to $150,676 for each financial institu - tion just to deal with regulatory changes. "Although significantly fewer enforcement actions were initi - ated in this past quarter, the number of items within each enforcement action jumped in Q 3 by 250 percent above the four-year average," said Donna Cameron, Continuity's Director of Regulatory I/O. "These complex activities pose a heavy compliance burden on institutions, adding to the already high costs of keeping up with new regulations." The BCI is a quarterly tracking index published by Continuity's Regulatory Operations Center. The Index measures the incre - mental cost burden on financial institutions to keep up with regulatory changes.

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