Create a Single Office to Manage Regulatory Risk

It's an idea that seems long overdue — the creation of a single regulatory management office designed to centralize how a bank responds to the different data and supervisory mandates issued by federal and state regulators.

Few banks have one now, but Joni Swedlund, a principal at Deloitte Consulting, expects more and more to start gravitating to such a model once they recognize its benefits.

Right now, Swedlund says, many banks are suffering from common problems, including a patchwork of data management systems caused after rapid M&A activity and a fractured approach to meeting regulatory requirements. Many banks continue to operate in silos, even when regulators are asking similar requirements of different business lines.

"The responsibilities for a regulatory office typically span multiple officers," handling everything from Sarbanes-Oxley mandates to stress-testing requirements, Swedlund says.

But it doesn't have to be that way. Banks are beginning to contemplate a more centralized system where regulatory reporting and response is housed in a single office that has a broader view of what's happening at the institution. Some banks have already moved in this direction. Fifth Third Bancorp last year shifted former regional president and chief risk officer Mary Tuuk into the newly created role of executive vice president of corporate services. In practice, Tuuk functions like a chief regulatory officer, trying to stay on top of the multiple supervisory and compliance issues facing the company and providing guidance on how to deal with them.

Creating a central regulatory management office "will help streamline decision-making, minimize redundancies and empower more of the strategic thinking at the business level," Swedlund says.

Part of the issue comes down to inefficient management systems. Conceivably, a regulator could ask the same question of two different departments in the same bank and the two might respond with different, conflicting responses, Swedlund says. As a result, regulators become increasingly distrustful of a bank's information, leading to more scrutiny.

Assembling a team dedicated to coordinating a regulatory response — rather than relying on a single person in charge of more traditional "compliance" — allows banks to better spot flaws in their own organizations and fosters trust with regulators. This approach also facilitates an improved sense of a bank's data and better handling of various regulators' data requests. So, getting a handle on Big Data can improve not just a bank's business lines, but its regulatory response.

"Over time, as banks continue to enhance and enrich that regulatory data warehouse, I believe that will benefit the entire organization," says Swedlund. "That regulatory data could be repurposed for a whole host of reasons. You could use that data for know-your-customer or anti-money-laundering purposes, and to do strategic thinking around customers, and to conduct mock examinations."