Financial organisations focus on meeting regulatory compliance thresholds to protect themselves from monetary, legal, and reputational damage. But how do you measure it? Financial institutions must have internal controls to mitigate non-compliance risks proactively before external auditors uncover them, aligning with their strategic objectives. Here is where key compliance indicators (KCIs) play a crucial role.
KCIs establish the benchmarks to measure financial compliance and forecast risk appetite. Using KCIs, banks, credit unions, and other financial institutions can identify issues proactively, implement corrective actions, and grow sustainably. KCIs, as an integral part of the financial compliance solution, strengthen strategic initiatives, boost profits, improve operational efficiency, and enhance customer experience.
Let’s take a look at the critical compliance indicators for financial institutions to ensure consumer protection and a fair playing field for all service providers.
Key compliance indicators (KCIs) to monitor in a financial institution
The KCIs to implement and monitor will be unique to your area of business. For example, the KCIs for a bank may be different from those of an insurance provider or a stockbroker. However, some of the common compliance indicators for financial institutions include:
Consumer complaints
Consumer complaints are a critical KCI that offers a direct insight into potential compliance violations and key risk indicators. Financial institutions (FIs) may segregate consumer complaints based on the branch location, department, product, and service and establish internal policies for complaint resolution timelines. Common compliance indicators for financial institutions include:
- Complainant demographics.
- Customer satisfaction score (NPS score).
- Response time.
- Resolution time.
- Number of complaints per geographical location/ product or service.
Resolution finding
Once you discover non-compliance, either internally or due to an external audit, you need to measure how quickly you can resolve it and identify the root cause. If you uncover the same non-compliance repeatedly, you may be failing to identify the root cause and addressing only the symptoms, indicating a deficiency in your corrective action processes. Common compliance indicators for financial institutions include:
- Number of repeats in non-compliance.
- Resolution time.
- Number of findings.
- Reinforcement actions (e.g. Memorandum of Understanding and agreements with regulators.
Compliance training
Train your employees to comply with the financial regulations and identify any non-compliance on time. Training should be a part of your overall strategy and part of the employees’ job function, emphasizing the importance of employee training for compliance. Key compliance indicators for financial institutions include:
- Training frequency.
- Completion rate.
- Training effectiveness assessment.
- Number of regulation training programs (new vs. old).
To quantify how much the employees are participating in compliance training, you can use feedback forms and periodic examinations.
Third-party compliance monitoring
New third-party service provider and vendor management guidelines clarify that banks are accountable for ensuring compliance by their vendors, partners, and investors. This emphasises the need for a robust third-party risk management (TPRM) program. Compliance indicators to monitor include:
- Critical or high-risk third-party suppliers.
- Vendor consumer complaints.
- Historic legal or regulatory actions against the vendor.
- The number of international contractors.
Regulatory change management
Financial institutions must measure how smoothly they implement and train their employees on the new regulatory changes. Compliance indicators to monitor regulatory change management include:
- Frequency of policy reviews and updates.
- Reporting to the management.
- Implementation timeline.
- Missed deadlines.
Number of exceptions/incidents
Financial institutions must treat all customers fairly. Exceptions for any customers may be considered as a regulatory violation, impacting key performance indicators. Compliance indicators to monitor such exceptions include:
- Frequency of exceptions or regulatory violations.
- Reasons for failure to respond.
- The number of persons documenting and signing off the exception to meet regulatory requirements.
- Number of exceptions by indirect lenders related to compliance management.
Time taken for resolution
Identifying and evaluating non-compliance is of little importance without understanding the time taken to resolve it. KCIs must track the resolution rate and the average time taken per resolution to meet compliance thresholds and risk profiles, ensuring adherence to laws and regulations. This helps understand if you are resolving all incidents, increases transparency, and demonstrates the company’s commitment to faster incident resolution.
Fair lending/banking
Financial institutions must ensure that their services are available to all consumers fairly and equitably. These compliance indicators for financial institutions include monitoring metrics in majority-minority and low-to-moderate income (LMI) areas, such as:
- Branch location, work hours, and service availability.
- High-priced loan spread to detect predatory lending.
- Number of loan officers.
- Volume of loan applications and corresponding rejection rates.
- Different product pricing to prohibited basis groups.
Fair and equitable marketing
To market to one group and not another may be considered a disparity in both traditional and online media, raising compliance issues. This may violate the Equal Credit Opportunity Act (ECOA). Financial institutions must create mail campaigns, language, and images such that the online algorithms and geographic filters do not filter the audience and provide an equal lending opportunity.
HMDA and CRA reporting
Home Mortgage Disclosure Act (HMDA) data discloses the residential mortgage loans, loan types, and applicants. Banks must analyse the HMDA data to resolve any errors before submitting it to the CFPB for further analysis. Compliance indicators for financial institutions include –
- The number of discrepancies in HMDA data.
- Missed deadlines for filing.
- Frequency of demographic data missing and the underlying reason.
How can Infosys BPM help in financial compliance risk?
By proactively tracking these indicators, institutions not only minimise compliance risks but also enhance operational efficiency, strengthen customer trust, and position themselves for sustainable growth. As the regulatory landscape evolves, staying informed and adaptable with robust compliance practices will be critical for continued success in the financial services sector. Infosys BPM assists financial organisations optimise performance, establish the right KCIs, and lower compliance complexity by offering asset management, wealth management, and investment banking services. Explore capital market outsourcing services in asset and wealth management and investment banking.
