Report
442
Number
Jan 08 2018

Credit Union Regtech: Innovation and Expertise

What can be done to help ease the regulatory responsibilities for credit unions? And what emerging technology is available to help credit unions better manage these responsibilities? This paper introduces the fintech category of regtech, and the role and promise it holds for credit unions. The author then presents a case study on how a number of different credit unions manage their regulatory responsibilities. You might be surprised to learn how asset size relates to successful regulatory management, and that regtech is a new term for tools that you might be already using.

Chandra L. Middleton
PhD Candidate, University of California, Irvine
Report Number 442

Executive Summary

Credit unions have dealt with regulatory monitoring, reporting, and compliance as long as there have been credit unions. But the volume of regulations that credit unions manage has dramatically increased over the years (Hui, Myers, and Seymour 2016), and may very well increase in the coming years. What can regtech offer credit unions to ease the regulatory burden? What can credit unions do now to ease the transition toward utilizing technology for monitoring, reporting, and regulatory compliance? And what should credit unions do now to prepare moving forward?

What Is the Research About?

From Filene’s Center for Emerging Technology, this report introduces regtech, its role for credit unions, and the promise it holds for helping to ease the regulatory burden. Then, a case study of credit unions provides insights into how credit unions of various sizes manage their regulatory responsibilities. It provides a snapshot of current technology that credit unions are using, in part, to manage the regulatory burden.

Regtech is still in its early stages; therefore, the term “regtech” was virtually unknown to many participating credit unions. However, most credit unions already use a variety of technology that helps them comply with regulations, such as enterprise risk management software and fraud protections and alerts. Is regtech merely an offshoot of fintech? Or does the emergence of regtech signal a pivotal change in regulation where technology streamlines current processes and offers a feedback loop that will ultimately change how regulations are conceived and implemented?

Among the nine credit unions studied, a number of themes emerged with regard to managing regulations. There is a definite sense of anxiety surrounding regulatory monitoring, reporting, and compliance. Credit unions also find it difficult to stay updated on ever-changing and new regulations. Uncertainty in how to interpret regulations is common, and the concern they will be fined for a misinterpretation is not unfounded as the rate of fines has increased gradually since 2009. Many credit unions interviewed struggle to integrate regtech with legacy systems and with vendors. When credit unions have implemented regtech for the benefit of internal efficiencies, they are met with outdated portals at governmental agencies that present manual work when reporting. Deciding whether to invest in regtech or maintain manual processes is a difficult choice for many credit unions, but the benefits of scalability and the ability for employees to deploy their intellect to more strategic work rather than routine tasks appeal to all of the credit unions researched.

Filene’s Research team sat down with two credit union people well versed with managing regulations: Liz Hayes, President and CEO at Infinity Federal Credit Union, and Brian Godwin, Director of Policy Solutions at PolicyWorks. Listen to their insights on credit unions and regulatory compliance, and other issues important to credit unions.

Filene Fill-In Ep. 34: RegTech & Credit Unions--Trench Stories, Love & Aspiration

What Are the Credit Union Implications?

  • Scale does matter. Smaller credit unions need to think creatively when deciding whether to adopt systems that may lessen disproportionately burdensome regulatory costs.
  • Technology is only as good as humans make it. Regtech will not automate everything. Expertise matters, and quality data and management insights will drive success.
  • The buck still stops with the credit union. Although vendors and regulatory software may ease the process, credit unions are still responsible for meeting regulatory reporting and compliance requirements.
  • Having an open, innovative mindset has more bearing on a credit union’s ability to tackle the regtech challenge than size. Small credit unions can be as successful with using and managing regtech as large organizations.

Sponsors

Filene thanks its generous sponsors for helping to make this research possible.