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#28071 - 08/16/02 12:50 AM How Much Does Compliance Cost
Don_Narup Offline

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Another thread is discussing Respect and Support -or lack there of - from management. It might be surprising to get an idea of the direct and indirect financial impact the program a compliance officer is responsible for, has.
Do your best guesstimate and don't forget all the employee expense throughout the bank as they collect and process CRA/HMDA data.


The Annual Cost Of Compliance
$25,000 to $50,000
$50,000 to $75,000
$75,000 to $100,000
$100,000 to $150,000
$150,000 to $200,000
$200,000 to $250,000
$250,000 to $300,000
$300,000 to $350,000
$350,000 to $400,000
More than $400,000







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General Discussion
#28072 - 08/16/02 02:23 AM Re: How Much Does Compliance Cost
Andy_Z Offline
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Asset size and branch distribution would also play into this as well as partitioning compliance costs based on a part time COs compliance time. I say this because we'll compare our numbers to other posters and we should recognize that these are apples and oranges. There are more factors dependent on the bank. But the point is, this is a cost center and it may be an eye opener for some. The bank wants a ROI.

More so is researching a sample of the fines for noncompliance. I like to say that compliance isn't so much a cost center as a profit preservation center.
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#28073 - 08/16/02 11:09 AM Re: How Much Does Compliance Cost
Richard Insley Offline
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Don- This is a critically important topic, but much internal research would be needed answer this question accurately. For starters, you need to define what you mean by "compliance". The "C" word means something different to every bank. Next comes the need to define the types of expenses that should/should not be included. For example, do you include your FDIC insurance premium? How about the amortization of lump sum costs such as the acquistion of expensive software systems such as loan documentation (TIL, RESPA, Flood forms, etc), AML & BSA automation, etc.

For well-run banks, the "cost of compliance" goes well beyond the C/O's budget. Thread after thread has discussed the need for the C/O to function as an expert and advisor & not as the "doer." Huge costs are woven into the day to day expenses of business units, for example teller time/cost of completing CTRs, hold notices, etc. Next, look at the regulatory time/cost your CSRs incur printing, delivering and explaining all the various new account disclosures. Your lenders also spend a good deal of their time taking the steps you have established to assure fair lending and full disclosure. For grins, take a loan package (it doesn't even have to be a mortgage) and separate the regulatory from contractual content. Look at forms that are both contract & disclosure--a significant percentage of these docs are there simply due to regs. Line units also absorb a significant cost for staff regulatory training. Even your postage cost is affected by regs--see how much you would save per statement if you removed the content that's required by Regs Z (credit cards, HELOCs & OD lines) and DD. Then there's audit. How much of the annual audit budget (including training) is spent on regulatory matters?

Then, as Andy observes, there's the matter of grouping costs by bank asset size, or measuring on an adjusted basis--I used to measure BSA compliance cost on a per-branch basis so I could compare my 250 branch network with larger and smaller institutions. A community bank will have a much lower cost, but the percentage of the bottom line may be much higher.
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#28074 - 08/16/02 12:39 PM Re: How Much Does Compliance Cost
AnonRegulator Offline
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If the concern is management support, perhaps a better question to ask them is, "What's the cost of non-compliance?" AR.

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#28075 - 08/16/02 01:37 PM Re: How Much Does Compliance Cost
Howard Lax Offline
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Remember the old line, "How many compliance officers does it take to screw in a light bulb? How many can you afford?" I suspect that many management teams would identify with this statement. One of the reasons manangement witholds information from complaince officers and attorneys is that more information would only increase their immediate compliance costs, while problems that cost more to resolve could come on someone else's watch.
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#28076 - 08/16/02 02:01 PM Re: How Much Does Compliance Cost
D2Xs Offline
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It's not whether a bank can afford a good compliance department. It's can they afford not to have a good one. Think of the cost of all those fines and worst case, closing of the bank by a federal agency.
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#28077 - 08/16/02 02:16 PM Re: How Much Does Compliance Cost
Andy_Z Offline
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And this is exactly why management has to balance between compliance and what is "good enough" to get by.

You could do a medium amount of work and get a Sat. CRA rating. You can do a lot and get an Out. The difference between the two, the cost of resources for bragging rights.
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My opinions are not necessarily my employers.
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Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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#28078 - 08/16/02 02:58 PM Re: How Much Does Compliance Cost
Lestie G Offline

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Maybe this is a key to gaining some attention and respect with management. Every time we report an issue, or brief management on a new rule or regulation - we should inform them of the costs and risks of non-compliance! Especially in the current environment of corporate 'queso grande's' having to answer for not following the rules.

For example, BSA compliance will be considered in applications, per the USA Patriot Act. Pointing this out, along with all the other bad things that can happen when we don't comply with BSA/AML should help us in getting the resources we need at least in this area.
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#28079 - 08/16/02 03:28 PM Re: How Much Does Compliance Cost
D2Xs Offline
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If you want to get the boards attention one tactic might be to show them all the articles of other banks that have been assessed penalties. Let them know what can happen and hopefully they will see the light.
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#28080 - 08/16/02 03:35 PM Re: How Much Does Compliance Cost
Don_Narup Offline

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Las Vegas Nevada
All of your comments are absolutely correct, to be analytically correct, much more information needs to be obtained in a different way. This is not a forum where all of that can be done. Just make a guesstimate of what your existing efforts costs.

Your comments reflect the pervasiveness and complexity compliance has become.
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#28081 - 08/16/02 03:35 PM Re: How Much Does Compliance Cost
Andy_Z Offline
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I do this. I like to show articles about the recent fines. Stating the potential fines and problems turns into "the sky is falling" unless those are happening. Quoting a $1.1MM per day penalty is an extreme. Those fines don't happen. Demonstrating what has actually happened, as I did in a recent posting about flood checks here on BOL, has helped me gain the resources, including support, need to do the job right.
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AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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#28082 - 08/16/02 06:48 PM Re: How Much Does Compliance Cost
Ted Dreyer Offline
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Andy: Regarding your comment on the maximum civil money penalty: Maybe you should tell them that Congress indexed the maximum amount to rise with inflation just in case $1 million per day wasn't enough of a deterrent!

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#28083 - 08/16/02 09:01 PM Re: How Much Does Compliance Cost
SMQ, CRCM Offline
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Between the lines
And therein is the formula for compliance cost.
Cost for non-compliance รท 2 = Cost of Compliance
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#28084 - 08/16/02 10:31 PM Re: How Much Does Compliance Cost
Richard Insley Offline
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Sorry, CAnderson, but the cost of 2 rights don't always equal a wrong! The penalty for a bank that is convicted of money laundering is the loss of the bank's charter! There's no way to compare this penalty with the cost of prevention. Likewise, how would you compare a year or two in the slammer with the price of a decent compliance program?
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