Nearly 70% of lenders are concerned about anticipated small business lending data collection regulations and the ability to manage those requirements, according to Wolters Kluwer’s latest Regulatory & Risk Management Indicator survey, which reported concerns about new regulations have “jumped considerably” in 2022. These findings mark the second consecutive year in which an institution’s ability to manage regulatory change in an effective and compliant manner was viewed as the chief challenge for institutions of all asset sizes in the survey.

“Unquestionably, this year’s survey findings point to the critical role that a robust regulatory change management program — particularly one featuring an up-to-date regulatory library — plays in helping ensure compliance and addressing risk across a lending organization,” Timothy R. Burniston, senior advisor for regulatory strategy at Wolters Kluwer Compliance Solutions, said.

Wolters Kluwer’s Indicator takes the pulse of the U.S. banking industry by measuring trend information on regulatory and risk concerns, realized and anticipated regulatory impacts on institutions and the level of banks’ current risk management efforts. The survey’s data inputs generate a regulatory and risk management “pain index.”

Wolters Kluwer Compliance Solutions conducted the Indicator from July 27 to Sept. 9, generating 328 responses and a “Main Score” of 94, a decline from the 2021 score but a result closer to pre-pandemic scores. According to Wolters Kluwer, this year’s decline was driven largely by a significant drop in the dollar amount of regulatory penalties and fines and the number of associated enforcement actions compared to 2021. The “Main Score” is based on survey respondents’ input and several other factors, including the number of new federal regulations, number of enforcement actions and the dollar amount of fines imposed on banks and credit unions over the past 12 months.

When asked about the overall compliance and risk areas demanding their focus, respondents identified the ability to manage risk across all lines of business as their top concern (59%), closely followed by the ability to maintain compliance with changing regulations (58%), the ability to keep track of regulations (55%) and the ability to demonstrate compliance to regulators (54%), which were all up by several points over last year’s survey.

As mentioned, concern over new regulations jumped considerably this year, rising from a score of 67 in 2021 to a score of 114 this year, marking a 47-point increase. Banks are anxiously awaiting a final rule on Community Reinvestment Act (CRA) modernization, while the release of the final rules on small business lending data collection implementing Section 1071 of the Dodd Frank Act is expected to be issued no later than March 31. According to the survey, 68% of respondents are “very concerned” or “somewhat concerned” about the anticipated small business lending data collection rule and their institutions’ ability to manage those requirements. Next on this list of compliance concerns are Bank Secrecy Act/Anti-Money Laundering rules (63%); fair lending laws (63%); and Beneficial Ownership, UDAAP rules and CECL (Current Expected Credit Losses) requirements (all tied at 62%). CRA modernization (58%) and state regulatory rules (57%) closed out the list.

Turning from regulations, 85% of respondents cited concerns about the continuing prevalence of manual processes and use of spreadsheets “sometimes or often” (85%) vs. only 9% who said they rarely use manual processes. However, nearly three-quarters of respondents indicated they have made some progress with digitizing their lending capabilities, although only 28% indicated their institutions have made significant progress or are fully digitized.

“Clearly, the banking industry increasingly recognizes the upsides in employing and more fully leveraging digital processes and automation, particularly given their impact in reducing or eliminating time-consuming and less accurate manual processes from their everyday workflows,” Steven Meirink, executive vice president and general manager of Wolters Kluwer Compliance Solutions, said. “Ultimately, embracing digital transformation can help improve the customer experience, foster inclusivity and allow lenders to more effectively compete.”

Looking forward to 2023, the top risk management priorities identified in the survey included cybersecurity (72%), compliance risk and credit risk (both at 51%), operational risk (27%) and third-party risk (16%).