Banks Forced to Rethink Risk Compliance Strategy as Regulators Take a Step Back

A quiet but consequential shift is reshaping how banks approach risk management, as regulators step back from prescriptive oversight and place greater responsibility on institutions to define their own priorities.

According to Darrin Benhart, Chief Regulatory Officer at KeyBank, this transition is forcing banks to rethink long-standing assumptions about governance, accountability, and decision-making.

A key speaker at CeFPro’s flagship Risk Americas conference earlier this month, Benhart reflected on an era when compliance frameworks were largely driven by external expectations rather than internal strategy, telling delegates: “Previously, regulators often set a large portion of the risk management organization’s priorities.”

That dynamic is now changing. Banks are being given more flexibility to determine their own risk appetites and recalibrate frameworks with a stronger focus on innovation and efficiency.

This shift is particularly evident in areas such as credit risk and anti money laundering, where banks are moving decision-making closer to the front line.

Rather than pushing issues upward to satisfy supervisory expectations, organizations are seeking to ensure that decisions are made at the appropriate level within the business.

At the same time, examiners are changing their focus. “Examiners are getting much more focused on the traditional financial risk,” Benhart said, noting a renewed attention on credit exposure, private credit, and non-depository financial institution risk.

This pivot reflects a broader move back to fundamentals. While governance structures remain important, there is less tolerance for what Benhart described as an overemphasis on documentation at the expense of real risk management.

Instead, regulators are scrutinizing whether banks can demonstrate effective controls and measurable outcomes.

The evolving supervisory approach is also becoming more targeted. Large, resource intensive reviews are giving way to shorter, more focused examinations that concentrate on specific risk areas.

“You’re going to see much more short term exams covering narrower areas,” Benhart said, adding that banks may not always receive formal feedback if no significant issues are identified.