Regulatory Compliance Law Firms
As bankers continue to struggle with the mounting regulatory burden emanating from Congress and state and federal regulatory agencies, many increasingly are turning to outside help to ensure that they are in compliance with the myriad laws and regulations affecting their businesses. We asked a number of law firms to answer the following question:
What suggestions would you make to bank regulatory authorities to reduce the regulatory burden of banks?
Stephen J. Coukos, partner, Edwards & Angell LLP, Boston
Community bankers need guidance on “best practices” regarding corporate governance, risk management and internal controls. For example, FDIC Vice Chairman Reich emphasizes that Sarbanes-Oxley does not apply to non-public banks with less than $500 million in assets. However, at the same time Federal Reserve Gov. Susan S. Bies seems to indicate in public statements that the Federal Reserve may feel that certain best practices should apply to all banks regardless of their size. The result is that many community bankers are confused as to what is expected of them and risk implementing burdensome practices and controls more suitable for larger or publicly owned institutions. To avoid this confusion, the agencies should provide coordinated guidance to community banks on this and other regulatory issues.
Kenneth F. Ehrlich Esq., partner, Nutter, McLennen and Fish, Boston
Simplify consumer protection rules, especially in the lending area. Eliminate certain overlapping state and federal requirements, especially in the areas of mortgage lending and insurance sales. Streamline the merger application process. Streamline mutual holding company reorganization process for state-chartered banks. Permit streamlined CRA examinations for all banks and thrifts with assets less than $1 billion. Provide parity for thrifts under the securities broker-dealer and investment adviser rules. Permit federal thrifts to sell insurance without establishing service corporations. Permit banks and thrifts to be organized as limited liability companies. Simplify reporting requirements relating to insider lending.
Christopher C. Gallagher Esq., senior partner, Gallagher, Callahan & Gartrell P.A., Concord, N.H.
With their narrow operations platform, community banks today must manage a flexible, responsive product and service mix while they contend with the regulatory rigidity of expanding mandates for self-policed compliance, bank-based homeland security and “fail-safe” systems of risk mitigation. “Layering on” more procedure won’t work. Compliance and operations can no longer efficiently compete for separate financial support. They must be blended – woven into an integrated execution, creating operational efficiency while ensuring examiner credibility. Such wholesale realignment has now become critical. Continued community bank success – indeed survival – depends on this major attitudinal overhaul, starting with senior management and the board. Banks that don’t will have it done for them, either by the regulators or, worse, their competition.
Kevin Handly Esq., Goulston & Storrs PC, Boston
There are, of course, statutory limits on what any regulator can do. Within these constraints, the quickest and most dramatic relief would be for state bank regulators to eliminate state regulatory requirements that substantially duplicate federal regulations applicable to state-chartered banks. Areas of duplication include truth-in-lending, truth-in-savings, electronic banking, community reinvestment, branching, mergers and acquisitions, and holding company regulation. At the federal level, regulators should rewrite their regulations in simpler and more general terms, eliminating all instances of micro-regulation. Every new regulation should have a pre-determined “sunset” date, after which it will expire unless re-promulgated after opportunity for public comments.
Carol Hempfling Pratt, Foley Hoag LLP, Boston
With some exceptions, community banks are required to comply with virtually the same regulatory requirements as larger banks, with a fraction of the resources. Some of my smallest clients can barely afford a full-time compliance officer, much less an entire compliance department. As new regulations are adopted, these banks worry about their limited staff’s ability to keep the bank up to date and out of regulatory hot water. To stop the ever-increasing burden, the regulators should perform cost/benefit analyses of existing regulations; for each new regulatory requirement that is adopted, the regulators should consider repealing an old requirement whose benefit cannot justify the cost of compliance.
Stanley V. Ragalevsky, partner, Kirkpatrick & Lockhart LLP, Boston While I appreciate the work that regulators are doing to lessen the regulatory burden, the biggest need for regulatory relief is in the examinations themselves. Regulators should focus their examinations on safety and soundness and maintain a sense of proportion when it comes to compliance examinations. A bank can be severely criticized in one year and adopt costly compliance programs to address the criticism, only to be criticized for poor earnings in its next examination. The cost of compliance with consumer protection laws has increased at an alarming rate, and, obviously, this has a greater impact on smaller banks. For example, just 10 years ago few community banks employed full-time compliance officers but now it has become commonplace.
Robert M. Taylor III, partner, Day, Berry & Howard LLP, Hartford, Conn.
While regulatory agencies can take limited steps to reduce the regulatory burden, congressional action is essential. A disproportionate regulatory burden is placed on small community banks. Accordingly, Congress should adopt a tiered regulatory system that allocates the regulatory burden relative to the size of the institution. Specific areas where Congress should act include: (1) increase the asset size limit for streamlined CRA examinations from $250 million to $1 billion; (2) eliminate the rarely exercised right of rescission; (3) simplify calculation of the finance charge and APR; (4) end annual privacy notices when there has been no change in policy; (5) reduce the volume of information in call reports; (6) reduce reporting requirements for currency transaction reports; and (7) improve or reduce the USA Patriot Act data-match requirements with OFAC lists.