Regulatory Relief: Recommendations to Reduce Regulatory Burden
Just in case anyone had doubts, regulatory burden is real. In fact, the banking industry has dealt with an average of 50 new or amended rules every year for the past ten years. No wonder we complain about burden. That is a huge amount of change which must be managed on top of existing and on-going burden.
In a series of public hearings, federal regulators have been presenting their findings to Congress. The most detailed presentation was made by John Reich, Vice Chairman of the FDIC. The review has revealed that there is often overlap, substantive duplication and even conflict of regulations. To illustrate this, his testimony included a chart of required consumer information disclosures and notices. The chart has nothing new on it, but the organization and array of disclosures is staggering. Only the most dedicated of computer programmers would dream up a flow chart that complex.
Referring to this chart and all the disclosures included on it, Reich stated that we have reached the point of "non-disclosure by over-disclosure." This statement reflects not only the complexity of the chart, but the frequent complaints of consumers that disclosures are confusing and complicated.
How Much is Compliance?
When CEOs complain about regulatory burden, they usually say "compliance" in the same breath. In fact, it is popular to blame regulatory burden on compliance and more specifically on consumer protection. However, consumer protection is only a very small part of regulatory burden.
The FDIC report includes twelve specific recommendations that have been identified to reduce regulatory burden. Only one of these, relating to flood hazard insurance, is consumer compliance. In fact, flood hazard insurance, although treated as consumer compliance, is really all about safety and soundness.
Two other recommendations involve areas that usually affect the compliance function. One is better scheduling of examinations. The other deals with reporting requirements on insider lending.
Nine of the regulations are really not related to consumer compliance at all. They include authorizing the Federal Reserve to pay interest on reserves, increasing flexibility for reserve requirements, streamlining merger applications, shortening post-approval merger waiting periods, improving information sharing with foreign supervisors, making adjustments to the Management Interlocks Act, exempting merger transactions between affiliates, streamlining call reports, and authorizing member banks to use pass-through accounts.
To put this in a fair context, the review of most of the recommended changes is well underway while the compliance review is the most recent. This being said, the issues identified for regulatory burden reduction that are not related to compliance are significant. But the findings certainly illustrate that regulatory burden is an across-the-board issue, not a compliance issue.
These findings do support the concerns raised by industry and regulators alike that regulatory burden is real and the system of laws that produce regulatory burden must be rethought and reworked. However, for the most part, the goals of all this regulatory burden must be accommodated. The simple way to reduce burden would be to drop some of the goals. This will never fly. The process must, instead, focus on better, more efficient and less burdensome ways to meet those goals.
Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 8, 7/05
First published on 07/01/2005