The finance industry continues to face significant compliance challenges—not only in relation to their core services, such as how much capital they have to hold in relation to their total assets, but also related to their IT activities. In particular, with the increasing importance of data, financial institutions need to comply with regulations in areas such as data collection, data management and data security. Plus, they often need a way to efficiently report on compliance-related activities, which can mean adding new software tools.
While complying with IT-related regulations can be burdensome, non-compliance can often make matters worse. Failure to meet compliance protocols can lead to:
- Regulatory discipline: The most obvious risk of non-compliance is discipline from regulators and other governing organizations such as fines, loss of insurance, cessation of certain operations and even prison sentences for executives and directors in extreme cases.
- Increased expenses: While adhering to regulations can incur certain costs, such as paying for IT audits and the additional resources required to file reports to regulators on certain activities, non-compliance can cost even more. In addition to facing regulatory fines, credit unions and small financial institutions can face increased expenses trying to clean up the effects of non-compliance, such as data loss caused by lax security procedures.
- Remember, regulations can protect more than just consumers; they can protect organizations themselves too. For example, the average cost of all cybersecurity incidents within a year at a medium-sized business is $184,000, according to a Hiscox study. If credit unions and small financial institutions can use IT compliance practices to boost cybersecurity, they can reduce the risk of facing high cybercrime costs.
- Reputational harm: Non-compliance can also be expensive in terms of the reputational damage that can come from regulatory enforcement or loss of data. When these types of incidents occur, customers may lose trust in these financial institutions, thereby driving them to competitors. Similarly, investors and other stakeholders may take a more negative view of your organization, which can make it harder to reach business goals.
- Decreased morale: Similar to reputational harm, non-compliance can also lead to decreased morale among employees. For example, regulatory enforcements may take time and money away from employees’ core job duties, causing frustration and lost productivity. Decreased morale can ultimately lead to employee retention issues, further increasing the costs of non-compliance.
Managing compliance can be difficult for any financial institution, but credit unions and small financial institutions may face even more of an obstacle due to having fewer IT resources in house. Even with a strong IT team, other leaders within these institutions may not be able to dedicate enough time to compliance as they try to compete with larger banks in core operating areas. As such, it's often more efficient and effective to work with a third-party expert that can help ensure end-to-end compliance support.
DataComm works with credit unions, community banks and regional banks to turn compliance challenges into opportunities to innovate. Our wide range of services includes implementing compliance-related software and processes, auditing compliance procedures, testing security practices and more.
To continue the conversation on DataComm's audit and compliance services, contact an expert representative today.