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Understanding The Impact of New Financial Regulations on Banking Solutions

Understanding The Impact of New Financial Regulations on Banking Solutions

Dennis Irwin

Chief Compliance Officer, Alkami

Governmental regulations are a fact of life for the financial industry. Compliance and risk teams are constantly navigating new and evolving regulations and adapting to meet their criteria.  Like with any new financial regulation, they are intended to provide guidance for lending and risk oversight but as we’re seeing today they can also create a new landscape for financial professionals – meaning new challenges and opportunities to tackle.

Reuters reported in October 2023 that changes to the 1977 Community Reinvestment Act (CRA) will mean “U.S. regulators will begin grading banks on which communities and geographies they service via online lending under tougher new rules modernizing fair lending standards.” 

The initial idea of the CRA was to prevent redlining, a discriminatory practice that some financial institutions used to deny loans to minority populations. Under the CRA, financial institutions receive a CRA grade on how well they served those populations. A low grade resulted in restrictions on the FIs ability to engage in certain business practices, including mergers and acquisitions. Under the old system, financial institutions were assessed based on where they had brick-and-mortar branches. This change adds online and mobile loan applications to the mix.

This builds on the April 2023 announcement that the Consumer Financial Protection Bureau (CFPB) issued a rule to finally implement Section 1071 of the Dodd-Frank Act, requiring financial institutions to collect and report data about credit applications made by small businesses, specifically women- or minority-owned small businesses. And like the CRA, Section 1071 was particularly concerned with redlining. And since the data is publicly available, the rules have both regulatory and reputational implications.

There is a tiered compliance schedule which takes effect in October 2024 for larger financial institutions. Smaller banks and credit unions should watch how the larger players are handling this new compliance schedule, and consider how technology partners can help, especially if they don’t already have solid data analysis in place.

Finally, we’re also seeing new guidance from the Office of the Comptroller of the Currency (OCC) that financial institutions need to consider when partnering with outside vendors. This guidance is intended to help banks manage risk associated with all third-party relationships. This follows the CFPB’s launch of audit procedures to evaluate the Compliance Management System around financial institutions’ information technology including service provider oversight. 

Per the FDIC, use of third parties does not “diminish or remove a banking organization’s responsibility” to perform all activities in a safe and sound manner, in compliance with applicable laws and regulations, including those related to consumer protection and security of customer information.”

This means that it is the responsibility of the financial institution to ensure their third-party vendors are thoroughly vetted, reputable, safe and reliable. Regulators will be hyper-focused on how banks and credit unions review and monitor their critical vendors.

That needs to be front and center this year, given what experts are seeing as one of the top priorities for the coming year for financial institutions: partnering with vendors to deploy more innovative, powerful and useful digital retail banking solutions and business banking solutions.

The bottom line is that third-party vendors will be necessary to help financial institutions gather and analyze the data these regulators will be examining. It’s vital to vet those vendors carefully.

These new guidelines are creating a more fair and balanced opportunity to better serve the community, create lasting and loyal relationships with existing account holders and create new ones.

For more information about issues affecting the financial industry today, download our free eBook, The 2024 Strategy & Budget Playbook for Financial Institutions.

Attending Alkami Co:lab 2024 and want to learn more about how to mitigate risk in partnerships? Add Dennis’s breakout session to your agenda at

At Alkami, we can help with that. Contact us today to find out more.

author avatar
Dennis Irwin Chief Compliance Officer
Dennis Irwin is a seasoned professional in Global Risk Management and Compliance, blending financial, operational, and project management skills to tackle operational and regulatory risks effectively.
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