3 Major Community Bank Compliance Challenges (and Solutions)

Today’s compliance landscape offers its fair share of challenges for community bank leaders and their compliance teams. A June 2024 study from ICBA found that more than nine in 10 ICBA member community bankers said the current regulatory environment is more challenging than it was five years ago. Further, 71% of respondents identified regulatory factors as one of their bank’s top three challenges.

“The evolving compliance landscape requires vigilance and accountability. So, it kind of all concerns me,” explains Debbie Robertson, vice president, compliance at $236 million-asset Grand Rapids State Bank in Grand Rapids, Minn. 

Bankers also think it will get worse before it gets better. According to the Second Quarter 2024 Community Bank Sentiment Index from the Conference of State Banking Supervisors (CSBS), 80% of community bankers believe their regulatory burden will be greater in the future.

Bank compliance teams face mounting pressures to address current requirements, balance them with pending preparations and institute procedural rollouts to ensure bank staff understand to prioritize, plan and persist in internal compliance tasks.

“Any time there are changes, I have to let everybody involved know that it’s coming up and to be ready. I’m a one-woman show here,” Robertson notes. Fortunately, community bank compliance teams consistently rise to the challenge. While the following three concerns bubble up as the top compliance issues plaguing community banks today, there are proven ways to address them.

“Have a relationship with your examiners. If you’re really stuck, you should be able to call your examiner and ask a question, and they should be able to help you.”

—Mandy Snyder, ICBA

Compliance challenge #1

Regulations, interpretations and compliance changes

The litany of regulations, interpretations and compliance changes puts pressure on community banks to keep pace. Since July 2023, regulators have put out nearly 7,000 pages of new and proposed regulations, and implementation timing, expectations and details can be uncertain as those new requirements take shape. 

“I would say the number one compliance issue right now is just managing compliance, overall,” says Mandy Snyder, vice president, online training, products and compliance at ICBA. “A rule gets put out. Then there’s a lawsuit, and they put a stay on the rule. So, then you have to wait for that to come out to determine what your new compliance date is. There are just so many obstacles to figure out.”

Solution

Tap into ICBA's peer network and examiner resources and events. For instance, ICBA offers certification programs (icba.org/education/certification) and targeted trainings (see sidebar on page 49) to ensure a depth of community bank compliance knowledge—an ongoing way to stay abreast of new developments. 

“ICBA offers such high-quality education and training; they’re my go-to,” says Robertson. “I have four certifications, and I do my continuing education with ICBA directly, because [ICBA uses] knowledgeable people. I also like the fact that they tailor regulatory information to meet the unique needs of community banks.”

Robertson acknowledges that another benefit of ICBA education is meeting like‑minded compliance leaders and growing her professional network. These peers then can serve as a sounding board as new regulations come into play. 

“People will reach out and ask me questions,” she says. “Or, I’ll email them and say, ‘How do you interpret this?’”

In addition, ICBA Community—the online national networking forum for community bankers at community.icba.org—helps bankers connect with peers on compliance and other topics. It serves as another platform for broader engagement on issues affecting the community banking landscape. 

Snyder also recommends leaning on examiners themselves to provide answers. “Have a relationship with your examiners,” she says. “If you’re really stuck, you should be able to call your examiner and ask a question, and they should be able to help you.”

“Compliance involves collective responsibilities, and vigilance is essential. And while it continually evolves, there’s no need for fear. You take measured steps, seek clarification when uncertain and collaborate to ensure adherence.”

—Debbie Robertson, Grand Rapids State Bank

Compliance challenge #2

Demanding compliance requirements

Community banks have more significant, timely compliance requirements to address than ever before, including updates to the Community Reinvestment Act (CRA), implementation of the 1071 Small Business Lending Rule and adherence to new FDIC signage requirements. 

While the volume of regulatory change continues to climb, along with its impacts on the financial services industry, specific regulations pack a punch in the current environment. 

CRA considerations. While an ICBA legal challenge to the rule is pending, time is ticking for bankers to understand the full extent of the rules and ensure they have appropriate processes in place. The majority of the changes were set to take effect on Jan. 1, 2026, but since a federal district court has temporarily enjoined the agencies from enforcing the final rule, the effective dates will be extended day by day while the injuction remains in place.

“The new rules are so complex and can be very confusing,” says Snyder. “For compliance or CRA officers to learn all of that, and then figure out how to comply with all of it and then train staff, that’s the tough part.”

1071 small business lending leads. Tack onto that the implementation of the Consumer Financial Protection Bureau (CFPB) 1071 Small Business Lending Rule, which requires financial institutions to compile, maintain and submit to CFPB certain data on applications for credit for women-owned, minority-owned and small businesses.

As a result of an ICBA legal challenge to the 1071 rule, and the issuance of a temporary injuction in that case, the CFPB has provided updated implementation and filing dates. Tier two institutions (moderate volume lenders) must be compliant by Jan. 16, 2026, with the first filing deadline June 1, 2027, and tier three (smallest volume lenders) have until Oct. 18, 2026, to comply, also with a first filing deadline of June 1, 2027. Community bankers should also make note of the interconnectedness of elements of 1071 with those found in the updated CRA requirements. 

According to the Deloitte report Intersection of Section 1071 and Proposed Community Reinvestment Act (CRA) Modernization Data collection and Reporting Requirements, “As banks conduct detailed product-level impact analysis across first-line processes, technology, data infrastructure and data quality controls for Section 1071 data points, it is essential to understand the proposed CRA intersections and associated considerations for applicable data elements.”

FDIC signage requirements. While on a much smaller scale than the previously outlined rules, the Jan. 1, 2025, implementation timing for this new rule has it top of mind for community bank compliance officers. The new FDIC digital sign will be required to be displayed near the bank’s logo in all bank websites and mobile applications and certain ATMs, along with the physical sign in branches and physical locations. “It’s not too daunting, but it’s another thing that’s due,” says Snyder. 

Solution

So, what can banks do to alleviate some of this burden? While it may not be the first solution to come to mind, automation can address increasing regulatory hurdles—both by helping to manage requirements and by freeing up staff time for more strategic compliance needs (see sidebar on page 47).

Technological solutions like robotic process automation (RPA) can take repetitive, time-consuming tasks—think reporting suspicious activity or transaction monitoring—and make them more seamless, saving time and allowing compliance officers to direct their attention to other matters. 

Data shows that banks are already starting to seek automation for this kind of support. Cornerstone Advisors’ 2024 What’s Going On In Banking study found that 43% of banks have either already deployed RPA or intend to do so in 2024, and 20% have been using generative artificial intelligence (AI) or plan to this year. Another 64% plan to increase technology spending in 2024. 

“You have to ask, what can your core software do for you? What other software is out there?” says Snyder. “It’s easier to work compliance solutions in a software system than to have manual spreadsheets.”

Something to note is that automation doesn’t have to come at the expense of the customer relationship. In fact, it may improve it. “You can still have a personal relationship and experience but leverage technology to augment it for automation purposes,” says Karl Falk, founder and CEO of fintech and ThinkTECH Accelerator alum Botdoc. 

Falk points to his company’s personal rule of thumb when it comes to deciding which tasks to automate and when. “If any of our staff do something more than 10 times, and they do the exact same task, there’s a way to automate it,” he says. “If you’re having customers or staff continually do the same thing over and over again, and it’s manual, automate it. But technology should never replace your business process; it should augment it and just make it better.”

Compliance challenge #3

New and evolving regulations with deadlines

Community banks have to keep track of new and evolving regulations and subsequent deadlines to determine how to prioritize their compliance tasks. Just staying abreast of what’s happening in the regulatory landscape can be a high-hour, but necessary, job. 

A 2023 report from Thomson Reuters found 28% of compliance leaders spend upwards of eight hours per week tracking regulations, with another 62% reporting between one and seven hours. That same study revealed a growing time commitment: 73% of compliance leaders expect an increase in regulatory activity, and more than half (51%) anticipate spending more time communicating with regulators. 

“There’s so much that gets thrown at you [with] different interpretations, and it can be overwhelming,” Robertson says. “I stay informed, that’s for sure. I regularly monitor regulatory announcements, I attend webinars that discuss the latest and I also engage in relevant forums.”

Add to that the need to plan out the bank’s compliance response and get the whole staff on board, and the standard work week shrinks in comparison. 

Solution

The only solution is to stay ahead of the implementation dates by plotting out roles and responsibilities and when things should get completed. In short, compliance teams need a constantly updated implementation plan, and that means planning and laying out a compliance calendar.

“It’s setting a calendar for tasks: I’m going to learn this by this date. I’m going to get all the documentation together by this date. We’re going to train on this date, and train again, because you’re going to need to train more than once,” Snyder says. “It’s setting a calendar and working through that calendar to make sure that you’ve got all your ducks in a row.”

Cultivating a “no fear” compliance mentality

The rate at which the regulatory landscape continues to shift remains challenging, but for compliance professionals, it’s about maintaining a level head. 

“Compliance involves collective responsibilities, and vigilance is essential. And while it continually evolves, there’s no need for fear,” remarks Robertson. “You take measured steps, seek clarification when uncertain and collaborate to ensure adherence.”

Plus, as she points out, when you’ve done the work and have the right policies in place, there’s nothing to worry about. “We take it seriously, so there’s nothing to be afraid of,” Robertson says. “I spend a lot of time making sure our bank is compliant. There’s no need for fear, because I stay on top of it.”