Community banks beef up staffing, third-party work as new regulations loom

The role of compliance officers continues to expand as more community banks enter third-party relationships and offer additional tech-enabled services. Banks are also facing heightened competition for qualified staff as the labor market remains tight. .In Sioux Falls, S.D., First Bank & Trust employs 15 compliance-focused staff, more than double the staffing when Chief Compliance Officer Kristina Schaefer joined the bank in 2007. Two officers track legal and regulatory changes in its footprint. Others split time between deposit and loan compliance while undertaking reviews and testing at the nearly $5 billion bank. .Schaefer attributes the increase in compliance needs to the rise in digital banking as well as the bank's fintech partnership on a national credit card lending program. The scope of the challenge was brought home to her during a recent banking conference. ."They said the pace of change has never been this fast, but it will never be this slow again," Schaefer said. "That is completely true, particularly in banking." .Compliance remains a top priority for banks as Community Reinvestment Act modernization nears. Modernized CRA will require banks with more than $2 billion in assets to comply with the same evaluation standards as the largest banks, including a new retail lending test, more rigorous data and reporting obligations, and expanded assessment areas. .Another looming regulation is Section 1071, which will require lenders to collect and report the race, sex and ethnicity of the principal owners of small business loan applicants as well as the company's gross annual revenue. The first deadline for Section 1071 reporting — for lenders that originate at least 2,500 small business loans annually — was Oct. 1, 2024, followed by two more for smaller originators in 2025 and 2026. A challenge to the rule filed by banking trade groups was denied in late August..Community banks are starting to train staff on Section 1071 two years before the smallest banks need to comply, said Mandy Snyder, vice president of online training, products and compliance at the Independent Community Bankers of America. First Bank & Trust has acquired an operating system to comply with Section 1071 and gain other efficiencies. "It makes things a little more challenging from a timing perspective, because sometimes there is a little bit of hurry up and wait," Schaefer said..At the smaller end of the asset scale, Richland State Bank in Bruce, S.D., is taking a tailored approach in its preparations. "Especially with 1071, we haven't put anything into place yet for what we have to do, but it's part of our conversations, what we need to do if this actually stands," said BSA/AML Officer Tiffany Lewis. "With CRA, we have to keep going full speed ahead, because we have to meet our community's needs, whether the CRA is in place or not.".Lewis said the bank's small size — $44 million — carries positives and negatives as new rules are implemented. Richland State Bank has an internal auditor with knowledge of policies and procedures.."When something new does come along, we have people who know what is going on within our bank who we can just sit down and talk about what is going to work best for us," Lewis said..'It's embedded into our culture'.The importance of compliance officers has expanded over the last 15 years, noted Ryan Rasske, American Bankers Association senior vice president of risk and compliance markets. Compliance officers who once did not have a seat at the executive table are now part of such conversations. .Compliance staff are now central to the operation of a bank, said Noah Wilcox, CEO and chair of Delano-based Minnesota Lakes Bank, which has $135 million in assets. "We have a very compliance-driven culture," he said. .Wilcox, who is also president/CEO and chair of the $239 million Grand Rapids State Bank, said the number of compliance partnerships — auditing, risk management and training — has more than doubled in the past decade. His banks meet with third-party compliance providers in the third quarter of each year to finalize plans for the coming 12 months. "We know what to expect," he said. "They know what to expect, and they can build it into their scheduling needs. They make sure they have everything they need covered, and it works well for us.".Compliance must be the focus of every banker and a part of policies and procedures, added Jenny Forschen, an ICBA education and compliance specialist. Some smaller banks can outsource compliance tasks to a third-party consultant, Snyder said. Forschen advised relying on vendor relationships and education consultants to help manage compliance tasks. .Compliance is now more about being a subject expert on regulations through education, accuracy, responsiveness and training, said Joe Birkholz, chief risk officer at St. Louis Park, Minn.-based Bridgewater Bank. The $4.7 billion bank partners with software company Verafin for alerts of potentially suspicious activity and participates in peer groups through the Minnesota Bankers Association to discuss Section 1071 and other new regulations. .While First Bank & Trust has outsourced certain compliance matters, other tasks remain in-house, allowing staff to establish closer relationships with executives and board members. The compliance department compiles a monthly report complete with memos, reviews and complaints. .'We want good communicators' .The shifting role of the compliance officer comes as competition remains fierce for compliance officers. Unemployment remains under 3 percent across the Midwest."It's a candidate-driven market," said Stu Kazor, senior executive recruiter at Omaha-based financial recruiting agency Adams, Inc..The average salary of a chief compliance officer in the financial services industry is between $164,750 to $222,750, according to Robert Half research. CCOs usually have at least a decade of experience, and public companies can require experience with SEC reporting. Many companies also prefer applicants with experience complying with the Sarbanes-Oxley Act. .Kazor said the shortage of compliance officers is worsened by the lack of college graduates entering banking compared to retiring bankers. He supports offering candidates hybrid, 40-45 hour work weeks, adjusting base salaries to market trends and a $10,000 sign-on bonus. .Community banks seeking compliance officers should prioritize strong leadership skills. Communication skills with the board and executives are a must with the rise of hybrid work and digital banking, Rasske said. These skills must be blended with expertise on more complex regulations and the understanding of how the compliance side of banking ripples through to other segments, he said. .Schaefer also sees banking experience as a positive for compliance staff. "Our strong compliance officers may have started in mortgage, started in the teller line, so they've had experience with how the bank works," she said. .The stereotype of compliance officers as loners with tunnel vision and a risk-averse nature is no longer true, said Kathy Enbom, a leader of regulatory compliance and Bank Secrecy Act services at accounting firm Wipfli. Compliance staff must instead blend their knowledge of complex regulations with interpersonal skills..Although more compliance staff have legal expertise, Enbom sees the highest-performing compliance officers combining legal experience with previous operational and frontline work. Richland State Bank's Lewis had established bank policies over the past several years before assuming her compliance role in January. ."We want people to be good communicators," Schaefer said. "We've grown a lot as an organization. We don't all sit in the same location anymore, so we have to reach out to people across the organization. You have to communicate with senior-level people and with tellers."