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The system should have definable and verifiable features that effectively control compliance. Image: Fotolia.
The system should have definable and verifiable features that effectively control compliance. Image: Fotolia.

Why Predictable Compliance Infrastructure Is Key

SEP 2, 2014 11:26am ET
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I am finding that a fast way to a regulator's heart is through a predictable and consistent compliance system. To be clear, I consider a compliance system predictable and consistent when it includes components that, while not necessarily automated per se, have definable and verifiable features that effectively control components of the compliance function without the judgment of humans. In other words, it should contain systemic components of an overall compliance system that, by definition, create verifiable and consistent outcomes.

These compliance infrastructure features — whether they involve recorded information for borrowers, restrictions on what can post to social media, regular interval regression analysis, pricing limits or caps on discretion, or other verification systems — allow regulators the comfort to know an outcome before the lender faces an examination. For instance, if the regulator knows a third party has a contract to do a regression analysis every quarter, the regulator knows with a high level of certainty that the company is testing fair lending at regular intervals. Hence, when a lender previously has had a history of infractions or there is a problem relating to an older transaction, a regulator deciding the appropriate response can rely on the integrated systems to ensure certain outcomes moving forward. The more the systemic functions create regulatory confidence and reduce the regulator's "trust factor" with respect to any lender, the greater the likelihood the regulator will adopt a wait-and-see approach, all things being equal. Indeed, beyond the fact that the system boosts the regulator’s confidence, the fact that the lender has gone to the trouble to implement such a system demonstrates the commitment to compliance that regulators desire.

Of course, implementing such a system will not erase past violations, but to the extent a regulator needs to decide whether a particular lender is invested in doing business the "right way," implementing consistent and predictable components into the compliance system is good start in the right direction from a regulator’s perspective.

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