Navigating compliance and risk in modern banking

Credit unions face a complex challenge: balancing regulatory compliance, managing reputational risks, maintaining data security protocols, and devising innovative strategies. To overcome this, they must adopt an integrated approach that embeds risk management seamlessly into member-centric operations.

The following key strategies will provide insights into building a robust risk culture, overcoming regulatory compliance challenges, integrating risk management into your organizational culture, leveraging technology in risk management, and fostering continuous education and collaboration.

Building an effective and balanced risk culture

One effective strategy for managing risk is to cultivate a strong risk culture throughout the organization. PSECU recently introduced a risk liaison program, embedding risk personnel within various departments to ensure that risk considerations are integrated from the outset of all activities. This approach allows marketing, lending, and other business units to proactively address potential risks during the ideation phase, identifying and mitigating issues early on, rather than waiting until the final stages and relying solely on the risk management team to identify compliance issues.

Embedding risk liaisons within departments involves appointing individuals who already have authority within their groups. These liaisons collaborate closely with the central risk management team, ensuring that both sides understand each other’s objectives and constraints. It’s also critical for the risk management team to recognize that their role is to partner with their internal clients, the business units, to optimize business outcomes and not risk-avoidance. This mutual understanding helps in finding balanced solutions that optimize business outcomes while mitigating risk.

Training and education are also crucial. Ensuring that all employees understand their role in risk management helps to embed these considerations into everyone’s day-to-day.

Overcoming compliance challenges

The regulatory landscape for financial institutions is constantly evolving, with different administrations bringing new priorities and focuses. Staying ahead of these changes requires a proactive stance. Institutions must anticipate regulatory shifts and ensure their practices align with future requirements.

Data security and privacy are critical areas of focus. With data breaches becoming increasingly common, financial institutions must implement robust data protection measures. These measures should be designed not only to comply with regulatory requirements but also to safeguard member information. This dual focus on compliance and security is a cornerstone of effective risk management.

Leveraging technology for risk management and member experience

Technology, particularly artificial intelligence, has the potential to significantly enhance marketing capabilities, compliance, and risk management efficiency. We are currently exploring how AI, including machine learning, can improve various processes. Machine learning algorithms can predict member behavior, helping marketers anticipate needs and preferences, thereby improving member satisfaction and loyalty. AI can analyze patterns and predict potential risks before they materialize. It also has the potential to make many processes, such as key marketing functions, legal reviews, contract analysis, and ongoing monitoring, much more efficient. This enables staff to shift their focus to more strategic activities.

While many of our functions have started to leverage AI to work more effectively, it will take some time to fully realize these benefits. It’s critical that our development includes effectively training employees on how to work with AI tools. It’s exciting to consider how this technology has the potential to transform how we work if we understand how to use it most effectively and avoid pitfalls.

For innovative, non-routine initiatives like launching new or enhanced products and services, involving compliance and risk management teams early in the strategic planning process is paramount. It’s equally important that the risk management team remains focused on significant issues and does not get bogged down in attempting to avoid every minor or remote risk. This proactive, integrated approach allows credit unions to pursue innovative member offerings and effective marketing campaigns while ensuring they meet regulatory requirements and appropriately mitigate risks.

Advice for credit unions

To effectively navigate compliance and risk in modern banking, credit unions should adopt a proactive, integrated approach that promotes collaboration between business units and risk management teams. This involves:

• Cultivating a risk-aware culture by embedding risk personnel within business units
• Leveraging technology like AI to enhance efficiency in creative processes, reviews, and monitoring
• Involving risk management early in the planning stages
• Ensuring risk management professionals understand their role in partnering with internal clients to accomplish business objectives
• Providing continuous training to ensure a balanced approach to risk management is embraced organization-wide

Rather than viewing risk management as an obstacle, this holistic mindset allows credit unions to mitigate risks, meet regulatory demands, and deliver exceptional member experiences.