As financial institutions are well aware, challenges and opportunities abound in the current economic environment.  However, in the year ahead, it appears that the opportunities are focused on growth and consolidation to achieve better economies of scale while challenges continue to focus on compliance with the myriad laws and regulations financial institutions live by.  Over the next few weeks we will be examining what we consider to be the top 10 considerations for financial institutions in 2016.  In brief, here’s our top 10 for 2016:  

1. Financial Institution M&A Activity – I expect to see continued consolidation in the financial institution industry, specifically with regard to smaller and mid-sized institutions looking to grow and achieve more efficient economies of scale.  Motivated buyers and sellers abound and larger community banks (between $1 and $10 billion in assets) and nonbank lenders are poised to thrive going forward.
2. Bank Secrecy Act/Anti-Money Laundering and OFAC Compliance – Compliance with the Bank Secrecy Act, anti-money laundering rules and economic sanctions will remain atop the mantle of financial institution focus areas in 2016.  With new rules on customer due diligence, the implications of the Financial Action Task Force review of the U.S. early in the year, and the implementation of new rules for investment advisors from FinCEN, financial institutions will be challenged to keep up with new and emerging compliance requirements under the BSA/AML and OFAC regimes.  
3. Cybersecurity – Perhaps one of the biggest challenges facing financial instructions in the near future is the balancing of cybersecurity risks with normal business operations.  Cybersecurity risk is frightening, but understanding the risks based on your specific institution is a critical starting point to get control of the fear.  Financial Institutions of all sizes need to face the fear head on by developing policies and procedures, conducting periodic, independent risk assessments and drafting and practicing incident response plans.  As Ben Franklin said, “[b]y failing to prepare, you are preparing to fail."
4. Data Security and Privacy – Similar to cybersecurity risk, the risk of a data breach incident is real and not limited to computer networks.  Financial institutions house significant amounts of personally identifiable information of individual consumers.  As such, there is always risk of that information walking out the door in a digital or hard-copy format.  Therefore, financial institutions need to make sure they have policies and procedures established, and an incident response plan to carry out, if notification to individual consumers, regulators and government officials becomes necessary under applicable federal or state laws.
5. Marketplace Lending – Just as the U.S. government and banking agencies have focused efforts to understand marketplace lending, so to should financial institutions focus some level of energy to understand the risk, and potential benefits of expanding relationships with marketplace lenders.  This segment of the U.S. lending market is here to stay and will need financing and more traditional banking relationships going forward... 
6. Vendor Risk Management – Third party (vendor) risk management has consistently been among the hot topics discussed at financial institution conferences in the past few years.  This trend is likely to continue in 2016 as banking agencies increasingly outline their expectations for risk management practices and as financial institutions continue to be found liable for certain actions of their vendors.
7. Loan Originator Compensation – One of the focus areas the CFPB has identified for supervision and enforcement in 2016 is mortgage loan originator compensation.  While the compensation rules that changed how mortgage loan originators are paid were promulgated by the Federal Reserve in 2010, and reinforced by the CFPB in 2013, these rules continue to create issues for financial institutions trying to attract and retain talented loan originators.
8. Ability to Repay – Another focus area of the CFPB in 2016 will be the supervision and enforcement of the ability to repay rules applicable to mortgage lending transactions.  Generally, under the ability to repay rules, a creditor is required to make a reasonable, good-faith determination that the individual borrower(s) has the ability to repay the mortgage loan according to the terms of that loan.  While creditors have some flexibility to determine that a borrower has an ability to repay a mortgage loan, the CFPB will likely be looking for how that flexibility is being used, especially in the context of certain higher-risk loan categories.  
9. TILA-RESPA Integrated Disclosures – One final area the CFPB has specifically indicated as a focus area for supervision and enforcement in 2016 are the new disclosures that have been promulgated under the Truth in Lending Act and the Real Estate Settlement Procedures Act.  The rules, affectionately referred to as “TRID”, require specific disclosure of mortgage loan terms and conditions, as well as expected settlement costs.  Simple as that sounds, the rules implementing TRID cover hundreds of pages in the Federal Register and still leave plenty of unanswered questions for the industry. 
10. Fair Lending – Perpetually on the radar of financial institutions lending to consumers is fair lending risk.  Fair lending risk consistently challenges lending institutions because of the reputational implications, among others, of getting it wrong.  Discrimination does not sit well with current or potential borrowers and, therefore, countless hours of work go into developing and implementing fair lending compliance programs.  Despite the hard work, the risk that application or lending data shows a unintended lending pattern continues to keep compliance officers awake at night.