Compliance risk rundown: Be prepared for 2024

Melissa D. Blaser

Dec 19, 2023

8 min read

The to-do list for compliance professionals at the start of a new year can be daunting. There is the checklist of annual tasks with hard deadlines that can’t be missed. In addition, it’s imperative to keep up with recent regulatory changes that bring new rules that must now be followed. To help keep you on track for 2024, here’s a rundown of items to help you meet the wide range of compliance obligations at your financial institution.

Annual items to attend to:

Ensure all of your systems and written policies and procedures are updated for the new regulatory threshold changes effective January 1, 2024, including changes provided under Regulation Z and M and anticipated changes at the time of this writing to Regulation C and BB.
Send annual surveys to your executive officers and board of directors to meet the requirements of Regulation O by obtaining their related interests. Include this with your annual report to the board on any insider loans secured by bank stock.
January is a great time to test your loan application register for accuracy to meet the requirements of the Home Mortgage Disclosure Act (HMDA) with an annual filing deadline of March 1. Resubmission of your data is required if the error rate in any field exceeds the resubmission thresholds set by your regulator, so make sure your data is accurate. In addition, schedule the quarterly HMDA reviews to help ensure the accuracy and completeness of the data within 30 days of each calendar quarter.
The Community Reinvestment Act (CRA) small business and small farm annual filing deadline is March 1 for large banks, so review your data for accuracy prior to filing.
Update your CRA public file by April 1. With the new CRA final rule, the public file must be placed on your financial institution’s website (if you maintain one). If you are a large bank, a retail assessment area will need to be defined.
Update your home equity line of credit historical table for 2023, using the month stated in the disclosure.
Schedule your Bank Secrecy Act (BSA) currency transaction report annual exemption eligibility review and your 314b recertification, as applicable. Also, don’t forget to schedule your annual BSA independent testing.
Schedule your annual reports to the board of directors for required areas such as bank security, safeguarding of customer information and FACTA identity theft red flags programs.
Schedule your compliance training for employees, including required training in the areas of the BSA, Regulation CC, bank security, safeguarding of customer information, duties of furnishers to credit reporting agencies and applicable courses to mortgage loan originators. In addition, schedule compliance training for your board of directors.
Schedule your SAFE Act mortgage loan originator NMLS renewals for November.

In addition to the annual commitments, keep these upcoming changes for the year ahead in mind:

FDIC insurance simplification

The simplification of the deposit insurance rule will be effective April 1, 2024. This rule, which was issued in January of 2022, provides a new simplified method of calculating deposit insurance for trust accounts by treating revocable and irrevocable trusts consistently. The rule also clarifies the deposit insurance coverage for deposits held in mortgage servicing accounts used by servicers to make payments.

What should you do?

Update any FDIC insurance disclosures or booklets for the new rules.
Obtain training for applicable staff and help ensure they can speak to customers about the new rules.
Guide retail personnel in assessing if the new rules provide opportunities for additional deposits.

Small business data collection

Regulation B, the Equal Credit Opportunity Act’s small business data collection rule, was issued in March of 2023 with tiered compliance dates, with the first tier being effective October 1, 2024. The rule requires the collection of several data points on small business applications. In July 2023, a stay was placed on the rule by a Texas court as a result of a lawsuit filed by banks and banking associations, with the stay covering the plaintiffs in the case. In October 2023, the stay was expanded to cover all affected financial institutions nationwide.

The stay will be in place until the Supreme Court decides another case against the CFPB, which is expected to be decided by midyear. At that time, the stay may be lifted and the effective dates will be adjusted based on the time the stay was in place. Due to the long implementation cycle needed, many financial institutions have continued preparation during the stay, considering it additional time to prepare.

How can you prepare?

Obtain training for all applicable personnel on the rule’s requirements.
Perform a gap analysis to determine which data points you do not currently collect.
Develop a process to collect the data points not currently collected.
Develop written procedures covering the consistent sources for each data point.
Train all applicable personnel on the new procedures.
Consider collecting data one year prior to your implementation date (as allowed).
Test your data collection to help ensure it is accurate.

Community Reinvestment Act

The banking agencies; including the FDIC, Federal Reserve and the Office of the Comptroller of the Currency; issued final rules in October of 2023 to modernize the Community Reinvestment Act (CRA). The effective date of the final rule is April 1, 2024; however, the applicability date for the majority of the provisions within the new rule is January 1, 2026, giving us just over two years to get ready.

Until the applicability dates arrive, the current CRA regulations should be followed. The rule provides a new framework for determining the performance requirements based on the bank’s asset size, expanding the asset size thresholds to less than $600 million for small banks; at least $600 million, but less than $2 billion for intermediate banks; and over $2 billion for large banks.

Small bank criteria:

Small bank performance tests will not change unless a small bank opts into being tested under the new retail lending test. Opting in would allow small banks to be assessed against the new metrics and benchmarks, which may result in an outstanding rating. Small banks may be assessed outside of their assessment area for the lending test if more than 50% of their loans are made outside of their facility-based assessment area.

Intermediate bank criteria:

Intermediate banks will be assessed using the new retail lending test and the existing community development test unless they opt in to being assessed under the new community development financing test. Intermediate banks may also be assessed outside of their assessment area for the retail lending test if more than 50% of their loans are made outside of their facility-based assessment area.

Large bank criteria:

Large banks will be assessed using four new tests, including the new retail lending test, retail services and products test, community development financing test and community development services test. These tests include objective performance standards, comparing the bank's performance to that of community and market benchmarks, with performance resulting in the rating for each test.

The retail lending test includes the potential for a retail lending assessment area, which will cover areas where the bank makes a large number of consumer closed-end mortgage and small business loans. Large banks will also be assessed on lending outside of the assessment area. Large banks also have new data collection requirements, with additional data collection and reporting requirements for those over $10 billion in assets.

What can you do now?

Obtain training for all stakeholders to help ensure everyone understands the new rule.
Large banks: Determine if you will have a retail lending assessment area.
Small and intermediate banks: Determine if you will have an outside assessment area.
Ensure that your public file is placed on your website (if you maintain one) by April 1.^.
Consider assessing your performance using the new benchmarks and make adjustments to your program if needed.

Other areas to watch in 2024

Fee issues

Banking agencies, including the National Credit Union Administration, have released various guidance on nonsufficient funds (NSF) fees, overdrafts and junk fees. Each agency has provided their views on the legality of such fees. Class action lawsuits continue in the area of overdrafts and NSF fees. Continue to monitor agency guidance, regulatory enforcement and class-action lawsuits as you assess your own fee schedules and product features and make changes as needed.

Fair lending and appraisals

Fair lending and appraisal bias continues to receive regulatory attention. If you haven’t already, confirm that your fair lending program addresses appraisal bias and be certain this is a factor in your appraisal and evaluation reviews, as well as the selection and retention of appraisers.

Redlining continues to be a hot topic within fair lending. Review the demographics of your lending areas as well as the surrounding areas as compared to the demographics of the areas where you have placed your branches and make loans. Continue to monitor lending in these areas and take action when needed.

Beneficial ownership information

The new beneficial ownership rules requiring businesses to directly report their beneficial ownership information directly to FinCEN are effective January 1, 2024. While this will not impact your requirements at this time, we do anticipate a rule being released that will alter the beneficial ownership requirements for financial institutions in the future. Until then, continue your current program. With the wars in Ukraine and Israel, sanctions risks have expanded and examiners are focusing more on a financial institution’s sanctions programs. Ensure your programs are well documented and address the risks involved.

How Wipfli can help

Don’t face compliance risk alone this year, Wipfli’s team is here to help with our complete compliance, fair lending, Community Reinvestment Act and Bank Secrecy Act suite of services. We can help provide peace of mind that your institution is meeting all requirements and provide consulting and testing services in any needed areas.