Managing Regulatory Change for Banks

Managing regulatory change has become one of the most pressing challenges for banks operating in an environment of continuous new rules, supervisory expectations, and emerging risks. An effective approach to managing regulatory change depends on a strong risk and compliance-aware culture, clear governance, disciplined assessment processes, and the right technology to keep pace with evolving obligations.

Why Managing Regulatory Change Matters for Banks

Banks operate in a landscape shaped by stringent regulations, economic volatility, cybersecurity threats, and shifting customer expectations, so managing regulatory change is critical to preserving trust and stability. Recent bank failures and high-profile scandals illustrate how poor risk culture and weak adherence to regulatory controls can rapidly erode confidence and destabilize institutions.

A proactive, enterprise-wide culture of risk and compliance enables banks to:

• Anticipate how new rules and guidance will affect their business models and products.
• Avoid regulatory breaches that lead to enforcement actions, fines, and reputational damage.
• Demonstrate to supervisors that they meet expectations for risk management, governance, and regulatory compliance.

The Parties Involved in Regulatory Change

Managing regulatory change effectively starts with clear leadership and accountability from the Board down to the first line of defense.

• Board of Directors and Risk Committee
  • Set risk appetite, approve the risk governance structure, and ensure the bank’s risk management framework aligns with regulatory requirements and best practices.
  • Oversee how management monitors regulatory developments and implements responses to emerging rules.

• Executive team (CRO, CCO, CEO, CFO, CIO)
  • The CRO and CCO are central to managing regulatory change by maintaining frameworks for identifying, assessing, and responding to new or revised regulations, as well as overseeing compliance risk assessments.
  • The CEO embeds risk and compliance considerations into strategy and operations, ensuring that regulatory change impacts are reflected in business decisions.

• Risk, compliance, internal audit, and first line
  • Risk and compliance specialists analyze regulatory updates, interpret obligations, and translate them into policies, controls, and training requirements.
  • Internal audit tests whether controls and processes designed in response to regulatory change are operating as intended and highlights gaps.
  • Customer-facing employees act as the first line of defense, applying procedures (KYC, AML, data protection, complaints handling) that reflect updated rules in day-to-day operations.

From Risk Awareness to Managing Regulatory Change

A robust risk-aware culture is the foundation for managing regulatory change because it trains people to recognize, assess, and manage risks across credit, market, operational, compliance, and reputational categories. Within this culture, regulatory developments are treated as key risk drivers that must be identified, classified, and addressed systematically.

Key practices that help banks turn risk awareness into an effective regulatory change capability include:

• Using standard risk libraries that incorporate regulatory risks, ensuring a consistent language and view of obligations across the organization.
• Engaging cross-functional teams so legal, compliance, risk, finance, operations, and IT all contribute to understanding the impact of new regulations.
• Incorporating external data and regulatory updates from agencies such as the OCC, Federal Reserve, SEC, CFPB, and FDIC into risk identification and classification.

RCSA as a Core Tool for Managing Regulatory Change

Risk and Control Self-Assessment (RCSA) is one of the most practical mechanisms for managing regulatory change because it links new obligations directly to risks and controls.

To use RCSA for managing regulatory change, banks should:

• Establish a comprehensive RCSA framework that specifies which regulatory-driven risks to assess, how often, and who is responsible.
• Involve cross-functional teams so assessments capture operational and compliance implications of new rules, not just policy-level changes.
• Conduct periodic risk assessments that consider new or revised regulations, using heat maps and matrices to prioritize responses based on likelihood and impact.
• Focus on control design and evaluation, testing whether newly implemented controls properly address regulatory requirements and remediating gaps quickly.
• Ensure continuous RCSA improvement by learning from control failures, past regulatory issues, and stakeholder feedback.

This structured approach turns managing regulatory change from an ad hoc exercise into a repeatable process integrated with broader risk management.

Building Mitigation, Monitoring, and Issue Management

Once a regulatory change is assessed, the bank needs coordinated mitigation and monitoring steps to ensure lasting compliance.

• Design and strengthen controls
  • Implement or update controls (segregation of duties, access controls, reconciliations, surveillance, approvals) to address new regulatory requirements and reduce the likelihood and impact of non-compliance.

• Train employees on new obligations
  • Deliver targeted training and awareness programs so staff understand revised policies, procedures, and their responsibilities under new rules.
  • Encourage open communication so employees feel comfortable raising issues when regulatory expectations are unclear.

• Use issues and complaints management for early warning
  • Advanced issues and complaints management systems help detect patterns indicating regulatory stress, such as repeated complaints about disclosures, fees, or service changes.
  • Root-cause analysis of complaints and incidents allows banks to refine processes and controls to better align with regulatory intent.

• Establish monitoring mechanisms and KRIs
  • Define key risk indicators related to managing regulatory change (e.g., policy implementation timelines, training completion, control deficiencies, regulatory findings) and monitor them regularly.
  • Perform internal audits, compliance reviews, and control self-assessments to test whether regulatory changes have been fully and correctly implemented.

Using Technology to Scale Regulatory Change

Technology is essential for managing regulatory change efficiently as banks grow in size and complexity.

• Matching platforms to bank size
  • Smaller community banks may begin with simpler tools such as spreadsheets, but these become cumbersome and error-prone as regulatory volume and organizational complexity increase.
  • As banks pass thresholds such as USD 1–10 billion in assets and come under more intensive supervision, they need more sophisticated platforms to manage regulatory change and compliance at scale.

• Integrated risk and compliance platforms
  • Platforms like Predict360 integrate regulations and obligations, compliance management, risk registers, controls, audits, policies, and training into a single cloud-based environment, supporting a holistic approach to managing regulatory change.
  • Features such as automated monitoring, testing, dashboards, and real-time alerts help ensure that control environments remain aligned with the latest regulatory expectations.

• Third-party and data-driven oversight
  • Tools such as AR Surveillance support continuous monitoring of third-party service providers, alerting banks to changes in external risk profiles that may have regulatory implications.
  • Peer benchmarking capabilities, using data such as Call Reports and Uniform Bank Performance Reports, help banks compare their risk and compliance performance with peers and identify improvement opportunities.

Continuous Improvement in Managing Regulatory Change

Managing regulatory change is not a one-off project but an ongoing discipline embedded into continuous improvement.

Banks can strengthen their approach by:

• Benchmarking their risk and compliance practices, including how they handle regulatory change, against industry peers and published regulatory reports.
• Defining relevant KPIs, extracting and normalizing data, and performing comparative analysis to identify gaps and strengths in their regulatory change processes.
• Developing and executing action plans to close identified gaps, then re-assessing over time as regulations, products, and business models evolve.

In a world where only about half of large financial institutions fully meet supervisory expectations for risk management, governance, and compliance, banks that treat managing regulatory change as a core strategic capability will be better positioned to safeguard stability, innovate safely, and retain stakeholder trust.