Financial institutions approaching the $10 billion asset threshold are leveraging automation and APIs to ensure they have proper governance in place ahead of increasing regulator scrutiny.

“Banks must have the ability to pull all of the data and information that regulators expect when they come in and start asking their questions,” Anna Kooi, national financial services lead at accounting firm Wipfli, told Bank Automation News.

Three banks — Houston-based Allegiance Bancshares, Indiana, Pa.-based First Commonwealth Financial Corp. and Boston-based Brookline Bancorp — were expected to reach $10 billion in assets in the third quarter after closing mergers and acquisitions.

The banks will join 171 U.S.-based financial institutions that have surpassed $10 billion in assets, and which are subject to supervision and examination of the Consumer Financial Protection Bureau (CFPB), including $3.4 trillion JPMorgan Chase, $2.4 trillion Bank of America and $1.7 trillion Citibank.

CFPB supervisory authority

When a bank, thrift or credit union — along with their affiliates — reaches assets of over $10 billion, the CFPB has “supervisory authority” over it, according to the CFPB website. More specifically, banks must adhere to the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010 to target unfair, deceptive or abusive acts or practices (UDAAP).

In an example of this enforcement, Hyundai Capital America (HCA), which has more than $40 billion in total assets, for one, was hit with a $19 million CFPB settlement in July after being penalized for providing inaccurate information to credit-reporting agencies.

The captive was accused of using “manual and outdated systems, processes and procedures to furnish credit reporting information,” according to a CFPB consent order. In addition to the settlement, HCA was ordered to review its consumer account files and update its policies and procedures for gathering credit information.

$227 billion Citizens, too, was fined $11 million in 2013 for violating the Dodd-Frank Act after the bank’s scanner misread deposit slips and checks, leading to inaccurate total deposit amounts, according to the CFPB. Additionally, Citizens was then required to review its compliance management system and “made a significant technology investment” to address the issue, the CFPB said.

Regulation adherence via APIs, automation

Banks can avoid regulators’ fines by linking their internal systems through APIs or automations in their cores, or by connecting a fintech application via an API, Kooi told BAN.

When a financial institution links their internal systems, it can “show regulators that they have their fingers on top of the risk management [and] the compliance monitoring of what’s going through the bank,” she added.

Banks reaching $10 billion in assets must ensure they have efficient operational processes in place, as well as a strong line of defense against liabilities, Kooi said.

Automations can help to streamline processes and remove the element of risk that manual work often brings, she said.

“To the extent that you can automate [the back-office processes], you have a lot less risk in those procedures being done,” Kooi said.

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