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What Securing CECL Compliance Means for Your Institution

Financial Crimes

Andrew Elliott



For small- to midsize banks and financial institutions, regulatory compliance is an ongoing challenge. At one level, your customer information and analytics capabilities must remain accessible, trustworthy, and secure. Then you have to ensure all your systems remain aligned to meet the complex requirements of your region.

A recent addition to your compliance demands is the new federal accounting standard, Current Expected Credit Loss (CECL). Implemented for larger banks in 2020 and impacting credit unions and other lenders in early 2023, CECL constitutes a transformational change in how you monitor the stability of your business.

If your organization hasn’t yet adopted CECL, the fines can be just as damaging as AML and fraud prevention violations. Fortunately, as far as federal regulators are concerned, your first violation constitutes what amounts to a fix-it ticket. But from that point forward, the clock is ticking for you to secure compliance and protect your institution’s reputation.

If your business is behind schedule in adopting CECL standards, now is the time to get started.

What CECL Means for Your Institution

CECL fundamentally aims to ensure transparency in your institution’s financial reporting while protecting your economic stability. Rather than solely focusing on the losses your business has incurred, CECL’s framework is based on expected credit loss. 

Ultimately, the new standard evaluates your institution’s stability by focusing on the probability your borrowers will default on their loans. The accounting standard focuses on a few key metrics, including:

  • Loss Given Default (LGD): How much does an institution stand to lose in a loan default?
  • Expected Credit Loss (ECL): The amount of loss an institution may incur over a given time period.
  • Exposure: What other risk factors impact your institution’s health in the marketplace?

These metrics at the heart of CECL provide a holistic blueprint for the health of your organization. At its root, the regulation bears similarities with the international accounting standard IFRS 17, which evaluates the stability of insurers. CECL sets a new standard for banks, credit unions, and other financial institutions.

On the surface, CECL assures federal regulators that your institution’s finances are stable. But it also provides a means to secure a more stable, analytics-driven future for your organization.

CECL Compliance Offers Advantages for Financial Institutions

If your organization has been slow to adopt modernization practices such as cloud storage and advanced analytics, CECL compliance is your push to get up to speed.

Legacy analytics tools and credit reporting agencies can run reports to illustrate your customer’s credit risk and your organization’s level of exposure. But previous accounting standards have been criticized for being too reactive and not providing timely information about losses. Advanced analytics tools offer crucial insights in a way that improves your ability to manage risk and allocate capital as your business demands.

Along with keeping regulators informed, CECL compliance provides greater transparency to your customers. With the 2008 financial crisis and the recent bank failures of 2023, consumers are wary of doing business with unstable or risky institutions. Your customers will appreciate indicators they are receiving a truthful look at your financial picture.

Failing to meet CECL standards risks costly fines, but you stand to lose customers who need to trust where they save or borrow money. Compliance offers a means for your institution to undergo a health check that reassures regulators, consumers, and your internal teams of your future.

Analytics Capabilities Must Evolve to Keep Pace with the CECL Accounting Standard

Though the CECL standards offer a broad range of benefits, it’s ultimately a complex standard to implement. Your institution needs to analyze data such as historical loan performance, borrower qualifications, and external economic conditions, along with multiple other factors.

Your solution also needs to develop and test models that will accurately forecast estimates for your credit losses based on those contributing factors. In addition, those models must be consistent with the standards set by CECL regulatory expectations. Advanced analytics through machine learning and artificial intelligence provide sophisticated ways to forecast the future for your business.

A legacy system simply can’t deliver the precise customer segmentation and predictive capabilities of a modern solution. You need to invest in the right IT resources to ensure your institution remains consistent with the CECL standard and regulatory expectations.

How Zencos Secures Compliance for Institutions Like Yours

With the advent of CECL, your institution needs to make a plan to secure compliance as soon as possible. This new regulatory environment requires the capabilities to generate financial reports and a new accounting framework. Along with updating your credit loss modeling, you need the right governance to support your data and accounting processes.

CECL compliance is complex, but it’s not an undertaking you need to tackle alone. Developing the right solution internally is both costly and time-consuming. However, with Zencos as your IT partner, you gain more than a proven collaborator for the right AML and fraud prevention solution for your business. You gain the ability to stand up a system that will secure the CECL compliance your institution needs.

Adopting a new accounting standard that allows greater visibility into the stability of your business doesn’t have to be difficult. We’re the experts. 

Through our partnership with SAS, we know how to implement these solutions in a way that’s simple, flexible, and tailored to your specific needs. Contact us, and let’s get started.

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