Key Takeaways from This Blog:
Delaying compliance involvement doesn’t speed innovation, it derails it. Banks that treat risk and compliance as after the fact gatekeepers face higher operational losses, stalled initiatives, and costly remediation that far outweigh any perceived time savings.
Early integration of risk and compliance drives better outcomes and lower costs. Institutions that embed compliance into project design from day one see faster risk identification, fewer regulatory failures, lower retrofit costs, and stronger alignment with regulators’ expectations.
The real differentiator is culture, not regulation. When risk leaders act as problem solving partners, focused on enabling compliant pathways, teams collaborate earlier, innovation accelerates, and institutions avoid the predictable failures regulators keep flagging.
Banks and credit unions spend years building technology roadmaps. They budget, they plan, they assign teams. And then, somewhere around month six, someone finally asks: "Should we loop in compliance?"
By then, it's too late.
The pattern plays out with predictable pain. A promising digital initiative gets derailed by regulatory concerns that could have been addressed in week one. A mobile feature that took nine months to build gets shelved because risk wasn't at the table when the architecture was designed. An AI pilot that leadership championed stalls out when someone finally reads the fine print on model governance.
Here's the uncomfortable truth: treating compliance and risk as gatekeepers rather than architects doesn't just slow down innovation. It kills it.
The Real Cost of "We'll Handle Compliance Later"
A 2024 Cleveland Federal Reserve study of 29 large US bank holding companies covering 74.5% of US banking assets found that financial innovation without strong risk management integration increased operational losses by 45.5% per standard deviation rise in innovation activity. That's not a rounding error. That's a systematic relationship between moving fast and breaking things, and those things costing real money.
The cumulative operational losses across the study period? Over $298 billion.
These aren't abstract numbers. They represent cyber fraud incidents, compliance failures, and process breakdowns that trace back to a single decision: building first, checking with risk later. The institutions that avoided these losses weren't less innovative. They had Chief Risk Officers and active risk committees engaged from the start of tech projects, which reduced the innovation-loss correlation by more than 4 points in regression analysis.
Or look at what's happening right now in Banking-as-a-Service partnerships. Recent FDIC consent orders against US banks show a clear pattern: institutions that failed to involve compliance early in fintech arrangements are now conducting two to four year lookbacks for BSA/AML deficiencies, Customer Identification Program failures, and Regulation E violations. The remediation costs alone dwarf whatever time was "saved" by not involving risk at project kickoff.
The 23% Problem
According to a 2023 survey of 250 US banking executives, 23% of digital innovations fail to involve IT, risk, and security teams early enough in the process. Nearly one in four tech projects launches with blind spots that could have been identified in the first meeting.
The consequences play out in FDIC examination reports. The March 2024 Consumer Compliance Supervisory Highlights documented violations of the FTC Act, Regulation E, and the Equal Credit Opportunity Act stemming from third-party partnerships for mobile apps and online platforms. The common thread? Weak initial due diligence and inadequate monitoring systems that should have been architected into the projects from day one.
One example: banks offering crypto-related products through fintech partners that were marketed as insured when they weren't. Another: automated electronic funds transfer dispute systems that violated Reg E because no one with compliance expertise reviewed the logic before deployment. These aren't edge cases. These are predictable failures that happen when risk assessment becomes an afterthought.
The institutions that avoided these pitfalls? The 98% of banks the FDIC found maintaining effective compliance management systems through proactive training, ongoing audits, and early integration of compliance into project design.
What Early Integration Actually Delivers
The banks getting this right aren't treating compliance as a checkbox exercise. They're embedding it into the process from day zero.
The same ThoughtLab survey identified "risk leaders" (institutions, primarily large banks over $100 billion in assets, that consistently integrate compliance early). These organizations reported 24% growth in early collaboration practices over two years, leading to faster risk identification, fewer breaches, and better alignment with laws like the California Consumer Privacy Act.
One US commercial bank CTO described embedding risk teams in real-time IT modernization efforts to avoid the process failures that plague institutions taking a sequential approach. The results showed up in integrated processes that increased 47% among leading institutions, board oversight that reached 97% involvement, and cost reductions from averted non-compliance issues.
Boston Consulting Group's 2025 study found that this "compliance by design" approach keeps costs in the 1.1% to 1.7% range instead of ballooning into budget-busting retrofits. Transaction monitoring systems handle alerts three times faster with 50% fewer false positives. Teams focus on actual risk instead of scrambling to retrofit controls onto systems that were never designed to accommodate them.
The pattern holds regardless of institution size. Regional banks that bring risk into conversations during the design phase avoid process failures requiring expensive remediation. Community banks improving data coordination across business lines accelerate risk performance metrics. Mid-sized institutions using DevSecOps principles embed risk experts directly into software development cycles, catching vulnerabilities during development instead of discovering them in production.
The Culture Problem Nobody Talks About
Here's the part that makes executives uncomfortable: early collaboration only works if Chief Risk Officers stop being the Department of No.
Ask project teams why they wait until month six to involve compliance, and you'll hear the same story. "Because they'll kill it." "Because it's easier to ask forgiveness than permission." "Because if we bring them in early, we'll never get off the ground."
They're not entirely wrong. The traditional risk function was built to say no. To identify problems. To catalog everything that could go wrong. That approach made sense in a stable environment where innovation meant launching one new product every three years. It's incompatible with the pace required to compete against fintechs that ship features weekly.
The Chief Risk Officers who get invited to early conversations are the ones who've made a fundamental shift in how they frame their role. They see themselves as business partners, not compliance police. When a project team brings them an idea, their first question isn't "What could go wrong?" It's "How can we make this work within the regulatory framework?"
That's not semantics. It's a complete reorientation of the function.
Instead of presenting three reasons why a project violates BSA requirements, forward-thinking CROs present three options for structuring the project to comply with BSA requirements. Instead of explaining why a partnership with a fintech poses unacceptable third-party risk, they outline what due diligence, monitoring, and contractual protections would make that risk acceptable. Instead of lecturing on what the FDIC might say, they help teams build documentation and controls that will satisfy FDIC examiners.
This shift creates a virtuous cycle. Project teams that experience risk as a problem-solving partner start coming to the table earlier. They bring rough ideas to compliance while there's still time to shape them, not finished products that have to be scrapped. They ask "What do we need to consider?" instead of "Will you approve this?" And critically, they stop viewing compliance as an obstacle to route around.
The data backs this up. The ThoughtLab survey found that institutions where risk teams position themselves as enablers rather than gatekeepers report 47% better process integration. Teams collaborate earlier because they trust the outcome will be "yes, if we structure it this way" rather than just "no."
But make no mistake: this requires Chief Risk Officers to actually deliver on that promise. You can't rebrand yourself as a business partner and then kill every innovative idea that crosses your desk. You have to do the harder work of finding compliant pathways, even when the obvious path has regulatory landmines. You have to advocate for projects that are good for the institution and acceptable to regulators, not just protect the institution from projects that might upset regulators.
That's a harder job than saying no. It requires deeper expertise, more creativity, and genuine partnership with business lines. But it's the only version of the risk function that survives in an environment where innovation isn't optional.
What Regulators Expect
This cultural shift isn't just good for internal collaboration. It's what regulators are demanding.
US federal regulators aren't subtle about their expectations. The FDIC and OCC have issued joint guidance specifically addressing bank-fintech arrangements, emphasizing that effective risk management must begin with initial due diligence, not post-launch monitoring.
Supervisory experiences show that arrangements lacking early risk partnership lead to vulnerabilities in data access, insufficient monitoring systems, and non-compliance with consumer protection laws. The agencies advocate for integrated management from project inception to harness innovation benefits while mitigating exposures.
Translation: regulators expect risk and compliance at the table before the contract is signed, before the code is written, before the partnership announcement goes out. Anything less isn't innovation management. It's regulatory exposure waiting to happen.
The AI Factor
If the case for early collaboration wasn't already compelling, generative AI just made it mandatory.
McKinsey's 2024 analysis shows adoption rates for gen AI in banking hitting 75% to 100%, depending on use case. That's not a pilot program. That's the new operating model. And every one of those implementations carries risk considerations around model governance, data privacy, bias detection, and regulatory reporting that didn't exist three years ago.
The Cleveland Fed study found that risks from innovation are most acute in the first one to four years after implementation. That window is exactly when institutions need strong risk functions most. Gen AI projects that launch without compliance involvement are setting up tail-risk events, the 99th percentile losses that destroy quarters and derail strategies.
The banks winning this race aren't the ones moving fastest. They're the ones who adopted what McKinsey calls a "shift left" strategy, where compliance and risk teams become strategic partners from the first brainstorming session, not referees brought in during the ninth inning.
What This Means for Your Next Tech Project
The question isn't whether your institution should involve risk and compliance early. The question is whether you can afford not to.
Every tech project that launches without risk at the table is a bet that regulatory requirements won't change, that security vulnerabilities won't emerge, and that your institution won't join the list of banks conducting multi-year lookbacks because someone decided compliance could wait.
The alternative starts before project kickoff. Conduct initial due diligence with risk and compliance teams. Identify regulatory touchpoints, data sensitivity issues, and third-party risk exposures before committing to an approach.
During architecture design, include compliance in technical reviews. Give them input on system logic, data flows, and monitoring capabilities while changes are still easy to make. Throughout development, maintain active risk committee oversight. Use DevSecOps principles to embed risk experts in software development cycles, catching issues in test environments instead of production. At vendor selection, structure contracts for ongoing compliance monitoring with built-in access rights, audit capabilities, and remediation pathways.
The Cleveland Fed study shows institutions with strong early risk integration avoid the operational losses that come with innovation done poorly. FDIC examination data proves they maintain the effective compliance management systems that keep regulators satisfied and consumer harm prevented. And the track record is clear: banks that treat compliance as an early partner report faster time to market, lower operational costs, stronger controls, and better strategic alignment between commercial goals and regulatory requirements.
The ones that don't? They're still explaining to boards why promising initiatives got shelved, why consent orders arrived, and why competitors are moving faster despite having the same regulatory constraints.
The choice isn't between innovation and compliance. It's between building both into your process from the start or retrofitting compliance onto innovation after the damage is done. Only one of those paths carries a $298 billion price tag.