Avoid ‘compliance fatigue’ by streamlining the lending process

Ernst & Young recently published the results of its 13th Global Fraud Survey, which included interviews with more than 2,700 executives. The firm reported that "compliance fatigue" is becoming a major issue within financial institutions as a result of the heightened scrutiny that is being applied to daily transactions.

EY's report noted that there has been significant pressure on regulators and lawmakers to "hold someone accountable" in the aftermath of the 2008 financial crisis, which may be the driving force behind a recent uptick in various types of enforcement actions. Banks and other firms have been facing investigations for everything from using misleading marketing practices to violating economic sanctions on Iran.

Consequently, as this blog has discussed before, lenders have stepped up their focus on risk management, giving compliance and risk professionals more of a say in the development of new products, services and strategies. However, EY asserts that these efforts are "running out of steam" as time goes on, which may be putting many organizations at risk.

"The easy gains and quick wins for the compliance function have been secured," David Stulb, head of EY's Fraud Investigation & Dispute Services, wrote in a foreword to the fraud report. "Further progress from here is likely to be difficult for many companies. Indeed for some companies compliance fatigue may have already set in."

Stulb warned that many financial professionals may be slipping into a "tick the box" mentality, going through the motions required to maintain compliance without truly engaging in the process. This may be partially due to the fact that compliance responsibilities are added on top of lenders' already heavy workload.

In addition to the work required to secure new business, lenders need to track key information about how payments on existing loans are being applied and how changes to amortization schedules will affect the lifespan of loans. This is vital to ensure that lenders are able to generate strong returns and maintain consistent performance.

By using professional-grade amortization software, lenders may be able to reduce the amount of time staff members need to spend on these functions, giving them more time to deal with compliance concerns.

EY determined that "there may be a persistent or residual level of inappropriate conduct that cannot be eradicated." However, this cannot become an accepted part of doing business. Companies simply need to focus on detection and risk mitigation, even if they cannot fully succeed in their prevention efforts. Making sure other daily operations run as smoothly as possible can help.