2020 Journal of Community Bank Studies

2020 COMMUNITY BANK CASE STUDY COMPETITION

Compliance Costs All banks must pay a certain amount of compliance costs each year, and C&N is no exception. Many things are included in these compliance costs, which are both direct and indirect costs. Examples of direct costs include salaries, training for employees, software costs, etc. Examples of indirect costs include loan processing and issuing mortgages. These costs are harder to put a dollar amount on but still act as an expense for C&N. There are many costs and fees that go into issuing a mortgage, and some would be considered compliance costs. Overall, personnel expenses account for the largest percentage of community bank costs of about 60% (“LexisNexis”). This far exceeds the cost of software and other expenses. Perhaps this is the case because there is currently a shortage of qualified personnel who have the ability to satisfy the ever-expanding BSA/AML regulations (Alter). So, smaller institutions may have trouble finding personnel that can properly develop a bank’s compliance program when many of the top professionals in the field find themselves at larger institutions. C&N focuses on efficiency and trying to automate and reduce costs, when appropriate. In 2015, it switched from performing manual reporting to using software to monitor transactions and automate the filing of SARs and CTRs. By cutting down on physical labor, the bank became more effective in monitoring for suspicious activity. According to its financials, C&N spends approximately $250,000 a year on BSA/AML compliance, which makes up the majority of its compliance spending in

more are enough to file a SAR if the institution has reason to suspect someone is using funds illegally, and transactions of $25,000 or more constitute enough to file even if a potential suspect cannot be identified (“1st Review”). BSA staff must file SARs to FinCEN no more than 30 days after the initial detection of facts that create a basis for filing the report. Examples of suspicious activity that would incite a financial institution to file a SAR include seeing a large volume of wire transfers, suspected shell entities, and unusual transactions occurring between different business types. After deciding to file a report, BSA employees must address who is conducting the activity, what instruments they are using to do so, when the transaction(s) took place, and why the institution believes it is suspicious. All this information is then compiled into a SAR narrative that provides a detailed, yet concise account of suspicious activity in question.

All banks must pay a certain amount of compliance costs each year, and C&N is no exception.

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