High Contrast

Newsroom
Events
Subscribe
Solutions and services
Insights
About RSM
Careers
Contact RSM

Infographic

Compliance at $10 billion and beyond

Key considerations for growing financial institutions

Jun 28, 2023
#
Business risk consulting Financial services Financial institutions Regulatory compliance

Crossing the $10 billion threshold is a special accomplishment for any financial institution—and it’s one that relatively few will ever achieve.

Besides marking a growth milestone, however, banks that pass the $10 billion mark must also address a very different, and often extremely challenging, set of compliance imperatives. Knowing when and how to prepare for these changes as well as when to seek expert advice can give banks a critical edge as they adapt to doing business at $10 billion and beyond.

NOTEWORTHY REGULATORY ACTION IN 2023

Recent bank failures prompted U.S. regulators to backstop uninsured depositors under the “systemic risk exception.” The Federal Reserve also made more liquidity available to U.S. banks to help prevent additional failures. Read more in “Recent Bank Failures and the Federal Regulatory Response.”

The cost of compliance is a significant burden for banks of any size:

pie chart 55% filled in illustration

55%

of retail bankers expected their regulatory compliance costs to increase in 2021 vs. the year before.1

That burden, however, can be far more costly as a bank crosses key growth milestones:

Additional compliance costs as a bank grows past . . .

dollar sign illustration

$10 billion+

Equal to a 0.41% tax on average annual profits

two dollar signs illustration

$50 billion+

Equal to a 0.11% tax on average annual profits

hands framing dollar sign picture illustration

$4.16 million per year

In absolute terms, this is the total increase in compliance costs, on average, for a bank with $50 billion+ in assets.2

Compliance may be costly, but it’s a bargain compared to the cost of non-compliance:

compliance form translating into money illustration

By the end of 2022, just a decade after the Consumer Financial Protection Bureau (CFPB) was founded, it issued a total of $3.7 billion in penalties and ordered an additional $16 billion in consumer relief.3

Key insights

Early planning is critical to ensuring that a bank’s compliance investments today are setting it up for success at $10 billion and beyond:

  • Many banks begin planning for this transition as early as $5 billion. Banks with aggressive plans to grow and expand markets, however, may need to begin even sooner.
  • Planning for compliance at $10 billion and beyond is a holistic task: It must involve the entire institution, including people, processes and risk oversight.

FI compliance at the $10 billion threshold: what’s ahead and why it matters

Here’s why compliance at $10 billion and beyond is a challenge not to be taken lightly.

clipboard illustration

The big squeeze: sizing up 3 compliance challenges

The list of changes when going from $9.9 billion to $10 billion isn’t long. It’s the significance of those changes that can create challenges without early and thorough planning. These include:

Key insights

  • Don’t establish your compliance strategy in a vacuum. Bring your trusted business advisors and primary regulator into the process.
  • Consider strategies to mitigate the $10 billion “revenue hit.” Many banks, for example, choose to jump over the $10 billion line via M&A—using balance sheet earning power and organizational efficiency to offset reduced fee revenue.

Meet the CFPB: 4 ways a compliance watchdog shows its teeth

When banks pass the $10 billion mark, the CFPB takes over as a bank’s primary regulator, enforcing 19 rules and regulations that cover a lot of regulatory turf.

binoculars illustration

The CFPB has a reputation as a tough and effective compliance watchdog. Here are four reasons why:

gavel illustration

The CFPB exercises vast discretionary powers and isn’t afraid to use them—especially when it comes to fair lending compliance.

hand holding money bag illustration

The CFPB has proven its willingness to use fines and consumer relief to punish and deter compliance violations.

teamwork illustration

The CFPB gets around, working with regulators from other agencies to uncover and investigate compliance issues.

shield illustration

The CFPB takes an approach to compliance that can seem difficult or even aggressive, compared to other regulators—especially when it comes to enforcement matters

Key insights

  • The most important compliance conversation any bank can have as it approaches $10 billion is with the CFPB.
  • Remember that compliance for any bank above $10 billion is a new world with new rules. The old mantra of “if it isn’t broke, don’t fix it” won’t fly here.

Keys to building a working relationship with CFPB regulators:

team members standing in front of gear illustration

Get your priorities straight: Learn which topics matter most to CFPB examiners:

  • Fair lending compliance
  • Unfair, deceptive or abusive acts and practices (UDAAP)
  • Loan servicing and collections • Compliance management systems

Do your homework: Reach out to experts who are familiar with the CFPB’s methods and can prepare you for compliance examinations.

Talk to your peers: Seeking out similarly sized peers that have recently crossed $10 billion can yield some of your most valuable and relevant insights.

Going bigger: Compliance at $50 billion or more in assets

Banks that reach the $50 billion threshold have accomplished a truly exceptional feat. For regulators, the emphasis at this level is on tailoring an approach to compliance that suits each bank’s unique needs.

chess pieces illustration

Compliance at $50 billion: 3 key practices

workflow illustration

Higher stakes

Regulators assume these banks could put the U.S. economy at risk if they fail, so they shape their compliance requirements accordingly.

handshake illustration

New roles

Banks are required to have a formal risk committee and chief risk officer.

magnifying glass illustration

OCC takes the lead

The Office of the Comptroller of the Currency (OCC) applies enhanced oversight guidelines tailored to banks at this level of size and complexity.

The Federal Reserve gives each bank a set of customized compliance requirements, including:

bank illustration
  • Risk-based capital requirements and leverage limits
  • Liquidity requirements
  • Overall risk management requirements, including formation of a risk committee
  • Resolution plan and credit exposure report requirements
  • Concentration limits
  • Annual stress tests

Compliance at $10 billion and beyond: What’s your plan?

Many banks find that working with an advisor makes it much easier to solve some of the toughest challenges associated with changing compliance priorities:

strategy board illustration

1. CFPB exam planning:
In-depth knowledge of the examination process and its aftermath, as well as a better general understanding of how the CFPB works

2. Working with regulators:
Understanding and meeting their expectations and opening clear lines of communication

3. “Regtech” upgrades:
Recommending and implementing technology investments in AI, automation, compliance management systems and related areas

  • Regtech solutions can unlock efficiency gains of more than 40% by automating a bank’s Know Your Customer process, compared to traditional, manual processes.6

4. Staffing:
Ensuring that a bank has the right mix of job roles and inhouse capabilities to carry a sustainable approach to compliance

5. Strategy:
Helping a bank pick the right path up to and over $10 billion, with an eye on profitability, sustainable growth and consistent compliance

Regulatory compliance consulting that enables smart growth

Consulting professionals work with banks of all sizes to prepare them for the rigors of today’s regulatory compliance environment. It can be an especially valuable resource for banks planning the critical journey across the $10 billion and $50 billion asset thresholds: helping to prepare your people, processes, data sources and technology systems to adapt successfully to next-level compliance challenges.

hand holding completed puzzle illustration

Core capabilities include:

  • Compliance management systems
  • Compliance risk assessments
  • Fair lending
  • UDAAP
  • Home Mortgage Disclosure Act
  • Mortgage Electronic Registration System reviews
  • Anti-money laundering compliance and model validation
  • Global anti-bribery and anti-corruption services

1 Retail Banker International, “Retail bankers expect regulatory and compliance costs to increase over the next 12 months: Poll,” 2021.
2 International Monetary Fund, “Watch What They Do, Not What They Say: Estimating Regulatory Costs from Revealed Preferences,” 2022.
3 Consumer Financial Protection Bureau, “Enforcement by the numbers.”
4 Mukharlyamov, Vladimir and Natasha Sarin. “Price Regulation in Two-Sided Markets: Empirical Evidence from Debit Cards,” 2019.
5 Haslett, Kiah Lau, BankDirector.com, “The Community Bank Board Guide to Crossing $10 Billion,” 2022.
6 Ross, Jenna, Visual Capitalist, “Why Anti-Money Laundering Should Be a Top Priority for Financial Institutions,” 2019.

Related insights

Live webcast | Wednesday, March 27

Are you ready for what's new and what's next?

As you head into 2024 planning, it's time to start thinking about Sarbanes-Oxley Act compliance and how to prepare for the new regulations and focus areas that lie ahead.  

Register today

THE POWER OF BEING UNDERSTOOD

ASSURANCE | TAX | CONSULTING

RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent assurance, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus.com/about for more information regarding RSM US LLP and RSM International.

© 2024 RSM US LLP. All rights reserved.