As we begin a new year, there is no question that the financial services industry landscape has changed. We faced unprecedented economic challenges in 2009 and as we seek to put fears about the industry's survival behind us, credit unions are still faced with significant challenges such as driving growth, raising core deposits, member retention, expanding member bases and increased competition that must be continually addressed.

Adding to these challenges is the ever-present and increasing burden that regulatory compliance places on financial institutions of all sizes. We call this burden the "Compliance Tax" and it is a real threat to the industry's future. In fact, a recent Gartner report, "Predictions for 2010: Regulatory Compliance and Risk Management in Banking," makes the assertion that "by 2013, the cost of regulatory compliance and risk management will have priced Tier 3 and Tier 4 financial institutions out of the market." However, this Compliance Tax can be addressed, and I believe the solution is found in technology.

Unfortunately, as the troubles of the financial services industry led the economy into a recession, the public's perception of the industry grew more anxious, leading to even more regulatory oversight. Despite the fact that the majority of credit unions are solid and secure and did not participate in risky lending, they are still faced with the extreme fallout of the financial crisis, the public's lack of confidence and the tremendous regulatory scrutiny that the entire industry now faces.

Additionally, it is a certainty that government will continue to increase regulations and tighten the controls already in place. As a result, new regulations will be constantly introduced and new standards continuously added to existing regulations. Consequently, credit unions can expect that the burden to address compliance (i.e., the Compliance Tax) will only grow as the government promotes and focuses on regulation to assure the market and the public that the events of the past will not be repeated.

Although the current administration's proposals for the reform of financial services regulation are still being debated, it is clear that risk management and transparency systems must be improved further, adding to the overall cost of remaining compliant.

Growing Tax Burden, Growing Compliance Burden
The Compliance Tax is driven by regulations that have grown over the past two decades. Added to this growth, running a modern credit union involves risk-risk that must be addressed to satisfy these growing compliance needs. Credit unions have responded by using manual processes, hiring consultants and assigning responsibility to individuals within the institution to create documents, track down papers, obtain signatures, follow up with employees and update spreadsheets. While these methods may have worked many years ago, today this process makes compliance inherently inefficient and takes away from serving and supporting your members.

Even when a credit union uses Microsoft Word or Excel documents to track compliance tasks, the user cannot assign or monitor them efficiently. This way of thinking is like digging the foundation for a house with a potting shovel. It's possible but do you really want to do it?

The issue further compounds itself with many regulations overlapping each other in a manner that can be very confusing and ambiguous. To assist with all the confusion, many credit unions often take on the added expense of employing consultants who have developed a systematic approach to compliance issues.

A Different Way Of Thinking Is Needed
Bringing order to this area is a key to managing risk and compliance. What is needed is a different, structured way of thinking about how compliance can be addressed using technology. Imagine if the documentation is implicit in the activity itself and an audit trail is automatically generated. The extra work that comes with the manual methods is eliminated, reducing the work associated with compliance, and therefore reducing the Compliance Tax, by up to 70%. This is the new approach to adhering to compliance that more and more credit unions are discovering with technology.

Using technology to automate and streamline the process moves risk mapping and auditing from people to software. For example, if a credit union has an Internet code of conduct that needs to be signed by all employees someone must get the names of each person needing to sign and read the policy. Then they must follow up with anyone who does not sign the policy. Technology eliminates having a person pushing the process along by automatically distributing the policy, sending reminders, ensuring consistency throughout the credit union and tracking everyone's progress of reading and signing it.

In addition to automating tasks, technology can reduce the overall cost and complexity of addressing compliance and regulatory issues. Newer technology concepts, such as crowdsourcing, can also be applied to the compliance process. Crowdsourcing takes a task traditionally performed by an employee or contractor and outsources it to a group of people or community (in this case, compliance professionals) in the form of an open call. This approach offers a significant compliance planning benefit because regulations are consistent for all financial institutions and instead of each individual trying to create a policy for the same federal guidelines, social media technology can share the work via the Internet. It not only reduces the workload for everyone, but also eliminates the need to constantly reinvent the wheel. This concept produces a better quality plan because it is reviewed and critiqued from a wide variety of perspectives.

By its nature as a movement, the CU industry understands the value of sharing information and working collaboratively. With the introduction of the type of technology I have described, that same philosophy can be applied to compliance. This technology takes a common industry problem and makes it possible to not only collectively find solutions and processes, but to then automate them and effectively reduce the burden. Credit unions that adopt this approach will gain a significant advantage in 2010 and can work together to effectively address the Compliance Tax.

Andy Greenawalt is the CEO of Continuity Engine, the creator of an on-demand, Web-based platform that automates the regulatory compliance process. He can be reached at or (866) 631-5556 x101.