Credit unions are just as subject to the collateral damage of complex and ever-changing regulations as too-big-to-fail financial institutions. Their compliance burden, as those of the too-big-to-fails’, has increased exponentially. Credit unions are left scrambling for ways to comply not only with federal regulations such as the Dodd-Frank Act, but with newer mandates around cybersecurity, anti-money laundering, hacking and terrorist finance. Also looming large are industry transparency initiatives to protect consumers and prevent internal wrongdoing via fraud, discrimination or abuse.

Dodd-Frank was put in place to ensure that large financial institutions are less likely to fail — and provide a course of action if a bank does fail. While some argue that these regulations are important, others claim that they are also prohibitive, halting economic growth and reducing consumers’ access to credit. And while large financial institutions are able to throw significant resources at compliance, credit unions and other smaller institutions are particularly vulnerable, especially when they become the default institution through which bad actors engage in money laundering and terrorist financing activities.

Since the passage of Dodd-Frank in 2010, credit unions have been feeling the regulatory pinch. In May 2013, 88.1 percent of credit unions responding to NAFCU’s Economic & CU Monitor survey on Regulatory Compliance reported rising compliance costs due to the law. In their quest for a solution, credit unions can address compliance mandates in a multitude of evolving ways. Outsourcing compliance has emerged as one of these ways — a strategy that has its own pros and cons. While outsourcing is a less costly way to get expert opinion on pressing and complex compliance matters, there is no longer an on-site coordinator for in-the-moment questions, and the credit union is still liable in the event that the offsite compliance officers fail. As Amanda J. Smith, a partner at the law firm of Messick & Lauer, which represents credit unions on issues related to compliance, succinctly put it: "You can't 'outsource' risk."

Neither can credit unions continue to rely solely on keeping their own internal data updated, as membership numbers and regulatory measures increase in tandem. However, there is a powerful way for credit unions to comply with the regulatory burden: big data. Credit unions need big data to make their operations easier, more efficient and less costly. The vast expanse of information now available can help credit unions stay on top of regulations by providing information about lenders and customers, from predictive analytics to detect suspicious activity before it happens, to personal information that helps with KYC regulations — specifics such as active military status, bankruptcy, deceased members, cell phone identification, best phone contact number and change of address. This is what big data often boils down to, and such information is increasingly important since many credit unions today know far less about their individual members than they once did.

With the use of big data comes the acceptance that technology can replace outdated manual processes. For example, the time for relying on manual processes in anti-money laundering activities is long past. Credit unions can monitor for it less expensively and in a more streamlined and automated way, putting the human resources expended that would otherwise be on it to much better use. Automation does not mean the elimination of knowledge workers. Rather, new positions and roles will be nurtured around analysis, interpretation of data, which — most importantly — will be applied in a relevant and timely manner to more effectively comply with industry regulations. Compliance is therefore one area where credit unions cannot afford to ignore big data.

Linda Straub Jones

Linda Straub Jones

Director of Market Planning for Compliance Products with LexisNexis Risk Solutions