A forthcoming rule that will require small-business lenders to collect a range of data as part of an effort to ferret out discrimination may pose the banking industry's most daunting compliance challenge next year.
In a recent survey of financial industry executives, more respondents expressed concern about their company's ability to manage the small-business lending data collection rule than any other compliance issue, including anti-money-laundering regulations, beneficial ownership rules and Community Reinvestment Act reforms.
Some 52% of the survey's respondents said they are very concerned about their institution's ability to manage the data collection rule, and another 16% said they are somewhat concerned.
"These are some pretty significant percentages," said Tim Burniston, senior advisor for regulatory strategy at Wolters Kluwer Compliance Solutions, which conducted the survey of more than 300 industry executives.
The long-awaited data collection rule will pose a two-fold test for banks and other small-business lenders. First, lenders will have to implement a system for obtaining and reporting the data. And second, depending on what the data shows about the gender, race and ethnicity of small-business loan applicants, regulators could use the results against lenders in fair-lending cases.
Under a 2021 proposal from the Consumer Financial Protection Bureau, only lenders that originate fewer than 25 small-business loans per year would be exempt from the rule's requirements. The Independent Community Bankers of America, a trade group that represents small banks,
The CFPB, which was required to collect the data under the Dodd-Frank Act of 2012,
The Wolters Kluwer survey, conducted between late July and early September, drew responses mainly from small banks and credit unions. Roughly 75% of the respondents were from institutions with less than $1 billion of assets. Another 15% of those surveyed represented firms with between $1 billion and $7.5 billion of assets.
Second on the survey's list of top compliance concerns were Bank Secrecy Act and /anti-money-laundering rules. Some 44% of the respondents said they were very concerned about their institutions' ability to manage those rules.
Third on the list was compliance with rules regarding information related to the beneficial ownership of bank clients, with 41% of the respondents expressing a high level of concern about their institutions' ability to manage that issue. The Treasury Department
The bankers who were surveyed expressed somewhat less concern about their ability to manage Community Reinvestment Act requirements. Some 36% of the respondents said they were very concerned about managing CRA compliance. Last May, federal banking regulators
One issue that figures to draw more attention from banks in 2023 is third-party risk management, particularly in light of
In the 2022 Wolters Kluwer survey, 26% of the respondents said they believed third-party risk management would receive higher priority at their firms over the next 12 months — up from 15% the previous year.
Two years into the Biden administration, the pendulum has not swung wildly in the direction of tougher regulatory requirements, said Kevin Petrasic, a lawyer at Davis Wright Tremaine.
Biden-era officials have taken stricter stances in some areas than their Trump-era counterparts did, Petrasic acknowledged. But he said the changes have been smaller than some observers expected, which has been helpful to banks.
"They don't want to spend a lot of money to do something, and then find out that in the next administration they didn't need to do that," Petrasic said.
Still, bankers are generally not expecting meaningful regulatory relief before the 2024 elections. Some 73% of the survey respondents said they think a measurable reduction in the overall regulatory burden for U.S. banks over the next two years is either very unlikely or somewhat unlikely.
