Compliance Can’t Keep Scaling – Why Small Financial Institutions Need a Smarter Path Forward

In the face of rising fraud, expanding regulatory expectations and limited resources, one thing is becoming painfully clear for credit unions and smaller financial institutions (FIs): the current approach to financial crime is breaking them.

They’re not losing the fight because they’re unprepared. They’re losing it because the rules of engagement have changed—and the tools they’re given haven’t.

The Modern Cost of Financial Compliance

Attempting to meet current compliance demands and workloads for smaller FIs is becoming increasingly unsustainable. Some credit unions now spend up to 5% of total expenses just to stay compliant.

With fewer personnel, less infrastructure and tighter budgets, smaller institutions, on average, pay from 4 to 10 times what large banks pay for the same tasks. In order to remain competitive, it’s imperative that smaller FIs find a way to increase efficiency and bring down cost.

The Fraud-Compliance Flywheel

As compliance workloads have grown, the demands of fraud management have risen alongside them. Every scam, mule      or false claim sets off a chain reaction—investigations, alerts, reporting      and audits. It has evolved into a persistent challenge, requiring extended and more sophisticated management processes to detect, mitigate and resolve risk.  A single bad actor can create days of administrative burden, slowing operations and increasing costs.

Increases to fraud management processes and tasks aren’t just frustrating, they’re expensive. Fraud drives up compliance and operational overhead costs, straining every dollar not already stretched across lending, service and innovation.

An industry that thrives on innovation and collaboration is being bogged down in paperwork, case queues      and outdated workflows. Financial criminals actively seek to exploit these inefficiencies, making smaller FIs prime targets.

Fraud losses now account for 8 to 11% of total non-interest expense at some credit unions. As is the case with compliance cost, this creates an unsustainable ecosystem for smaller FIs.

Silos Are the Enemy of Efficiency

One reason this still exists is that FIs still separate fraud and compliance, even though the criminals don’t.

Fraud signals are compliance risks. AML red flags are often preceded by fraud indicators. Treating them as disconnected functions means duplicating effort, missing patterns and burning out already-stretched teams.

Addressing Growing Compliance and Fraud Costs

 Simply increasing headcount is not a viable solution. Budget constraints make it impractical, the talent market does not support it and, most importantly, it would fail to address the underlying issue.

The smarter path isn’t bigger teams—it’s unified intelligence. Processes that talk to each other. Systems that prioritize what matters. Workflows that reduce redundancy and raise signal quality.

A Smarter Framework: One Fight, One Strategy

Fraud and AML aren’t two problems. They’re two sides of the same risk. The institutions that succeed in this new landscape won’t be the ones that spend the most—they’ll be the ones that integrate the fastest.

 Smarter risk management, shared context and continuous assessment are no longer luxuries—they are fundamental requirements for maintaining a competitive financial compliance strategy.

And they’re achievable. Not through a silver bullet, but through disciplined transformation—aligning operations with reality, and empowering teams to focus on judgment instead of administration.

Let’s Redefine Resilience

The work done by credit unions matters—to communities, to members, to the values of trust and fairness that underpin the financial system.

But they need room to breathe. And that means systems that support their mission, not sabotage it.

The future of fraud management and compliance isn’t about doing more with less, it’s about integration and collaboration. Because at the end of the day, the institutions that get ahead won’t be the ones that filed the most reports, but the ones that finally stopped working in silos.