2024 Regulatory Intensity – Endurance Advisory Partners

2024: Regulatory Intensity Ahead by Stephen Curry

Last year saw turmoil in the banking industry. The multiple bank failures of 2023 sparked regulatory intensity that will undoubtedly continue into 2024 and the federal agencies’ commitment to addressing key priorities before the fall election will fan the flames. Regulators will have their eyes on credit quality, concentration risk, liquidity, and stress analysis this year, particularly for banks with exposures to commercial real estate and other high-risk portfolios like oil and gas. In general, examinations are being done with a ferocity we haven’t seen before. All banks should expect this, and Be Prepared! With this in mind, there are some key regulatory areas that banks can expect to see more focus on in 2024:

Stress Testing

Stress testing scenarios will be instrumental in determining the impact of rising operating and borrowing costs on both retail and commercial borrowers. There will also be increased attention on areas like the accuracy of risk ratings, portfolios experiencing high growth and the introduction of new products – particularly any that come from fintech partners and other third parties.

Change Management

Throughout this year, there will also be more scrutiny on change management processes, particularly for financial institutions seeing shifts in leadership, operations, risk-management frameworks, technological integrations, or business activities. This keen eye will not only be on the institutions themselves, but on any third-party service providers that support critical functions, as well.

Compliance

As technologies like person-to-person payments and banking-as-a-service platforms continue to rise in popularity, regulators also have a close eye on financial institutions’ compliance with anti-money laundering (AML), know your customer (KYC) and Office of Foreign Assets Control (OFAC) rules, as well as internal controls, overdraft compliance, fraud mitigation, and error resolution.

Third-Party Risk

A focus on third-party risk management is also poised to continue throughout 2024, as regulators continue to ensure that banks validate controls and have substantial data protections in place. In 2023, financial models and data analytics gained a good bit of attention and are likely to stay in the spotlight into 2024, this time with focus on implementing sound model risk sustainable growth. While financial banks may view that as an insurmountable challenge, it can be straight forward and evolve over time.

Strategy

Another area regulators will have a close watch on is bank strategies, with most of their attention focusing on risk governance and control functions. The increasing integration of artificial intelligence and blockchain technologies into banking operations will especially be under a microscope, so banks must be able to defend any innovative projects and associated partnerships.

New Rules

There are also new regulatory initiatives set to come down the line this year like the Corporate Transparency Act, and the CFPBs Personal Financial Data Rights – adding further complexity to an already full compliance calendar.

M&A

As regulators continue to lean on audit, credit risk review and risk-management processes, there will likely be new measures that help validate the reliability of those functions. Despite the regulatory fatigue that most banks, especially the small rural ones, are feeling, 2024 is poised to witness an acceleration in M&A dialogues. However, the uncertainty around capital availability and regulatory approval for mergers of any scale will make the process even less predictable than it has historically been.

M&A dialogue will pick up this year, but it’s not entirely clear if capital will be available, and if so, what the regulatory appetite will be for approving mergers. However, what is important is for banks to contemplate mergers and acquisitions and not simply ignore the subject of “acquire or be acquired.”

As financial institutions navigate the rapidly changing regulatory terrain, it will be critical to have allies that will help them confront the challenges of an evolving industry environment.

Whether internal or third-party, banks need advisors equipped with expertise in capital markets, regulatory affairs and risk management. A bank’s success in 2024 hinges on understanding what is needed by the regulators now, and in the future as the environment evolves.

Stephen Curry is CEO of Endurance Advisory Partners, a bank risk management consulting firm.

This presentation is being furnished on a confidential basis to provide preliminary summary information. The information, tools and material (collectively, information) contained herein is not directed to or intended for distribution or use by any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Endurance Advisory Partners, LLC, to any registration or licensing requirement within such jurisdiction.

The information presented herein is provided for informational purposes only and is not to be used or considered as an offer to sell, or buy securities or other financial instruments, or any advice or recommendation with respect to such securities or other financial instruments. The information may not be reproduced in whole or in part or otherwise made available without the prior written consent of Endurance Advisory Partners, LLC. Information and opinions presented have been obtained or derived from sources believed to be reliable, but Endurance Advisory Partners, LLC makes no representation as to their accuracy or completeness. Endurance Advisory Partners, LLC, accepts no liability for any loss arising from the use of the information contained herein.

This information is subject to periodic update and revision. Materials should only be considered current as of the date of the initial publication, without regard to the date on which you may access the information. Endurance Advisory Partners, LLC, maintains the right to delete or modify the information without prior notice.

Under no circumstances and under no theory of law, tort, contract, strict liability or otherwise, shall Endurance Advisory Partners, LLC be liable to anyone for any damages resulting from access or use of, or inability to access or use, this information regardless of whether they are dire, indirect, special, incidental, or consequential damages of any character, including damages for trading losses or lost profits, or for any claim or demand by any third party, even if Endurance Advisory Partners, LLC knew or had reason to know of the possibility of such damages, claim or demand.