Over the past few years, banks have been forced to devote more resources to compliance and compliance personnel as the regulatory burdens on financial institutions have increased. For large financial institutions, this generally means hiring additional compliance staff. In 2014, The Wall Street Journal tagged compliance officers with the “the hottest job in America.”
But, many smaller banks do not have the resources or need for a full-time compliance officer. According to Bank Director’s 2015 Risk Practices Survey, 29% of banks with less than $1 billion in assets did not have a chief risk or chief compliance officer compared to only 8% of banks with $1 billion to $5 billion in assets. Some smaller banks have adopted or are exploring a creative solution: sharing a compliance officer.
In 2012, a community bank based in Brookfield, Wisconsin hired its outside compliance consultant as its full-time compliance officer. But, this Brookfield-based bank does not have the need for a full-time compliance officer, so it markets the consulting services of its compliance officer to other community banks and recoups much, but not all, of the cost of its compliance officer through this staff-for-hire arrangement.
The American Banker recently reported on a group of five Kansas banks exploring the possibility of sharing a compliance officer. The group of banks hopes to attract a top-notch employee and share the cost.
Sharing employees among different banks creates its own set of challenges. The banks need to agree which institution will employ the compliance officer and provide benefits and then lend the employee out to others in the group. The banks will also need to agree on an allocation of costs and time, in particular, what happens if one bank’s compliance needs are significantly greater than those of the others. Additionally, the banks will need to discuss how and to what extent the compliance officer can use confidential information and processes developed from one bank to assist the other banks in the group.
Bank regulators have remained relatively quiet on the concept of sharing a compliance officer. However, the Office of the Comptroller of the Currency (“OCC”) issued a white paper in January 2015 encouraging community banks to collaborate with one another and pool resources to reduce costs and increase efficiency. Despite the many benefits of collaboration, the OCC cautioned banks that any collaborative activities must comply with antitrust laws and strategic and reputational risks must be considered before entering into collaborative engagements.