In today’s rapidly evolving regulatory landscape, financial institutions can’t afford to be caught off guard. From shifts in BSA/AML expectations and UDAAP enforcement to emerging areas like AI governance, ESG disclosures, and crypto oversight, regulators are making it clear: institutions must be proactive, not reactive.
Internal audit is often viewed as a backward-looking function – one that focuses on historical performance and compliance. But in a dynamic risk environment, internal audit can serve a far more strategic purpose. When leveraged effectively, it becomes a powerful tool for preparing organizations for what’s ahead.
By embedding regulatory foresight into audit planning, assessing the institution’s readiness for upcoming changes, and evaluating the strength of governance structures and change management processes, internal audit plays a vital role in helping organizations stay compliant and resilient.
In this article, we’ll explore how internal audit teams can evolve from reactive reviewers to forward-looking advisors – and how institutions can use the internal audit function to navigate future regulatory shifts with confidence.
Why Regulatory Shifts Demand Proactive Audit Involvement
The regulatory environment for financial institutions is no longer static—it’s a moving target. Agencies like the CFPB, FinCEN, OCC, and state regulators are issuing new rules, reinterpretations, and enforcement actions with growing frequency. These changes are reshaping how institutions must approach compliance, risk management, and governance.
Yet many internal audit programs still focus heavily on retrospective testing—auditing past activity and flagging control failures after the fact. While that remains important, it’s no longer sufficient on its own. Today’s regulatory shifts require audit teams to anticipate—not just respond to—compliance risk.
Rising Complexity, Expanding Scope: New areas of regulatory focus—such as the use of artificial intelligence in underwriting, oversight of fintech partnerships, and increasing scrutiny of third-party risk—require auditors to develop new subject matter expertise and incorporate broader areas into their review cycles. Regulatory priorities are expanding, and so too must the audit lens.
Enforcement Trends Demand Agility: Recent enforcement actions make one thing clear: regulators expect institutions to be agile and forward-thinking. They want to see institutions actively monitoring regulatory developments and preparing for upcoming rules—not scrambling to comply after implementation deadlines have passed. Internal audit plays a key role in evaluating whether those proactive efforts are actually happening and whether they’re effective.
Internal Audit as a Strategic Partner: When audit teams are involved early in regulatory risk discussions, they can help institutions:
- Identify control weaknesses before they lead to violations
- Test readiness for compliance with emerging requirements
- Promote accountability across departments
- Deliver assurance to the board and regulators that the institution is prepared
Embedding Regulatory Risk into the Audit Plan
To truly support an institution’s preparedness for regulatory change, internal audit must move beyond static annual plans and integrate emerging regulatory risks into its audit scope. This doesn’t mean chasing every headline – but it does mean building flexibility into audit planning and using regulatory intelligence to inform audit priorities.
Start with a Risk-Based Audit Approach: Begin by conducting or refreshing your annual risk assessment with an eye toward upcoming regulatory developments. Ask:
- Are there pending regulations likely to impact key business lines?
- Has recent enforcement activity highlighted gaps relevant to your institution?
- Are any business areas or partnerships dependent on third-party fintech relationships, AI tools, or crypto-related services?
Align with Known and Anticipated Regulatory Priorities: Incorporate areas already flagged by regulators for increased scrutiny, such as:
- UDAAP and consumer protection
- Fair lending and algorithmic decisioning
- BSA/AML modernization and suspicious activity monitoring
- Data privacy and security
- Vendor management and third-party oversight
Look beyond final rules—proposed rules, speeches by regulators, and examination trends can all signal future direction.
Prioritize Emerging and High-Impact Areas: Include audits that examine areas of regulatory uncertainty or transition. For example:
- If your institution is leveraging AI or machine learning, audit its governance, bias controls, and documentation.
- If you’ve launched new deposit or lending products, review how regulatory requirements (e.g., disclosures, complaint handling, marketing) are being applied.
Engage Stakeholders Early: Include compliance, legal, product, and risk management teams in audit planning discussions. These groups can offer insight into upcoming changes and help you align your audit plan with the institution’s broader compliance strategy.
By embedding regulatory risk into the audit plan, internal audit becomes a strategic advisor – helping the institution stay ahead of the curve rather than playing catch-up.
Testing Readiness for Compliance with New Regulations
Internal audit can play a powerful role in helping institutions prepare for upcoming regulatory changes by conducting pre-implementation readiness assessments. These reviews evaluate whether the institution’s people, processes, and systems are adequately positioned to meet new requirements before enforcement begins.
Assess Policy and Procedure Alignment: Audit teams should review current policies and procedures to determine whether they’ve been updated—or need to be updated—in response to forthcoming regulatory changes. Questions to ask include:
- Has the compliance or legal team identified the applicable rule?
- Are updated requirements clearly documented in internal procedures?
- Are there any outdated policies that could create confusion or risk?
Auditing these documents prior to effective dates helps ensure consistency across business units and supports timely implementation.
Review Business Unit Awareness and Preparedness: Readiness assessments can also evaluate how well frontline and operational teams understand the upcoming regulatory shift. This includes:
- Interviewing key personnel to confirm awareness of the change
- Reviewing project plans for implementing new requirements
- Testing whether appropriate training has been planned or delivered
Look beyond final rules—proposed rules, speeches by regulators, and examination trends can all signal future direction.
Review Business Unit Awareness and Preparedness: Readiness assessments can also evaluate how well frontline and operational teams understand the upcoming regulatory shift. This includes:
- Interviewing key personnel to confirm awareness of the change
- Reviewing project plans for implementing new requirements
- Testing whether appropriate training has been planned or delivered
Evaluate System and Technology Readiness: Regulatory changes often require updates to systems and platforms, such as new disclosure templates, revised data fields, or updated monitoring thresholds. Internal audit should verify:
- Whether technology updates are being scoped, tested, and tracked
- If IT change management controls are in place to support compliant implementation
- That any vendor or third-party system changes are being coordinated and reviewed
Identify Gaps and Recommend Remediation Before Exams: A key benefit of internal audit involvement before regulatory changes go live is the opportunity to flag gaps and recommend corrective action in advance of regulatory scrutiny. This not only supports compliance – it enhances the institution’s reputation for diligence and accountability.
Auditing the Regulatory Change Management Process
Internal audit can play a powerful role in helping institutions prepare for upcoming regulatory changes by conducting pre-implementation readiness assessments. These reviews evaluate whether the institution’s people, processes, and systems are adequately positioned to meet new requirements before enforcement begins.
Assess Policy and Procedure Alignment: Audit teams should review current policies and procedures to determine whether they’ve been updated—or need to be updated—in response to forthcoming regulatory changes. Questions to ask include:
- Has the compliance or legal team identified the applicable rule?
- Are updated requirements clearly documented in internal procedures?
- Are there any outdated policies that could create confusion or risk?
Auditing these documents prior to effective dates helps ensure consistency across business units and supports timely implementation.
Review Business Unit Awareness and Preparedness: Readiness assessments can also evaluate how well frontline and operational teams understand the upcoming regulatory shift. This includes:
- Interviewing key personnel to confirm awareness of the change
- Reviewing project plans for implementing new requirements
- Testing whether appropriate training has been planned or delivered
Look beyond final rules—proposed rules, speeches by regulators, and examination trends can all signal future direction.
Review Business Unit Awareness and Preparedness: Readiness assessments can also evaluate how well frontline and operational teams understand the upcoming regulatory shift. This includes:
- Interviewing key personnel to confirm awareness of the change
- Reviewing project plans for implementing new requirements
- Testing whether appropriate training has been planned or delivered
Evaluate System and Technology Readiness: Regulatory changes often require updates to systems and platforms, such as new disclosure templates, revised data fields, or updated monitoring thresholds. Internal audit should verify:
- Whether technology updates are being scoped, tested, and tracked
- If IT change management controls are in place to support compliant implementation
- That any vendor or third-party system changes are being coordinated and reviewed
Identify Gaps and Recommend Remediation Before Exams: A key benefit of internal audit involvement before regulatory changes go live is the opportunity to flag gaps and recommend corrective action in advance of regulatory scrutiny. This not only supports compliance—it enhances the institution’s reputation for diligence and accountability.
Auditing the Regulatory Change Management Process
Beyond testing readiness for individual regulatory changes, internal audit should evaluate the overall effectiveness of the institution’s regulatory change management (RCM) framework. A strong RCM process ensures that the institution systematically identifies, assesses, implements, and tracks regulatory updates—reducing the risk of gaps or delayed compliance.
Evaluate the Governance Structure: Audit should begin by reviewing how the institution governs regulatory change:
- Is there a documented process or policy for managing regulatory updates?
- Who owns the process (e.g., compliance officer, regulatory change committee)?
- Is there regular reporting to senior management or the board?
Strong governance ensures accountability and prevents regulatory changes from being siloed or overlooked.
Assess Tracking and Monitoring Capabilities: Internal audit should test whether the institution is effectively monitoring for regulatory updates from all relevant sources, including:
- Federal agencies (e.g., CFPB, FinCEN, NCUA, OCC)
- State regulators
- Industry bodies and legal alerts
Review whether there is a centralized log or tracking system, and assess whether entries include:
- Source and summary of the change
- Impacted areas
- Assigned owners
- Implementation deadlines
- Status updates
A weak or inconsistent tracking process increases the risk of missed or poorly executed changes.
Test Implementation Controls: Audit should validate whether identified regulatory changes are being:
- Properly assessed for applicability and impact
- Assigned to the appropriate departments
- Integrated into updated policies, procedures, and systems
- Accompanied by employee training when necessary
Audit should also assess whether the institution maintains documentation of completed changes and retains evidence of implementation (e.g., redlined policies, system screenshots, training logs).
Identify Process Gaps and Recommend Enhancements: Through this review, audit can help identify common failure points such as:
- Delays in assigning ownership
- Missed changes due to inadequate monitoring
- Lack of training or cross-functional coordination
- Failure to document or follow through on planned changes
By providing recommendations to enhance the change management process, internal audit ensures that future regulatory shifts are handled with greater consistency, speed, and accuracy.
Providing Actionable Insights to the Board and Senior Management
Internal audit doesn’t just serve the compliance or risk teams—it also plays a critical role in keeping the board and senior management informed about regulatory exposure and preparedness. In a shifting regulatory environment, leadership relies on internal audit to deliver more than control testing—they need insight, foresight, and strategic guidance.
Translate Regulatory Risks into Business Impact: Audit reports should clearly communicate how regulatory shifts may affect operations, strategic goals, or reputation. This includes:
- Highlighting areas where compliance gaps could lead to enforcement risk
- Clarifying how upcoming rules may impact specific business lines or product offerings
- Explaining systemic weaknesses that could slow implementation or create repeat findings
Highlight Areas of Vulnerability: Use audit findings to proactively flag:
- Business areas that are slow to respond to change
- Weaknesses in policy governance or training execution
- Breakdowns in communication between compliance, risk, and operations
Track and Report Progress on Remediation: Provide clear, timely updates on the status of remediation efforts related to regulatory change. Boards want assurance that the institution is making measurable progress—not just identifying issues. Use dashboards or summary reports that highlight risk levels, due dates, responsible parties, and completion percentages.
Support Strategic Planning: Internal audit can add value by participating in broader strategy discussions – particularly when new regulatory trends might impact long-term planning. For example:
- New UDAAP interpretations may affect product development
- Evolving BSA/AML expectations could require technology upgrades
- ESG or climate-risk guidance may impact third-party oversight or disclosures
When internal audit contributes this level of foresight, it enhances the board’s ability to make informed, risk-aware decisions.
How RADD Supports Forward-Looking Internal Audit Programs
At RADD, we believe internal audit should do more than look backward—it should help institutions anticipate and prepare for what’s next. Our team works alongside banks, credit unions, and fintechs to design and execute audit programs that are both risk-based and regulatory-responsive.
Risk Assessments Informed by Regulatory Trends: We begin with a tailored internal audit risk assessment that doesn’t just evaluate your current environment—it integrates emerging regulatory priorities. Whether it’s AI usage in decisioning, vendor oversight, or BSA/AML modernization, we help ensure your audit plan aligns with what regulators are watching.
Strategic Audit Planning and Execution: RADD supports internal audit functions in creating agile audit plans that can respond to mid-year regulatory shifts. We prioritize high-impact areas and deliver actionable findings that not only assess controls—but guide improvements. Whether we’re performing full-scope audits or co-sourcing with your internal team, our approach is collaborative and customized.
Readiness Reviews and Change Management Audits: We conduct targeted readiness reviews to assess how well your institution is prepared for upcoming regulations—before they go into effect. We also audit your regulatory change management process itself to ensure it is structured, documented, and responsive to new requirements.
Policy, Procedure, and Training Validation: As part of our audit engagements, we review policies and procedures for alignment with regulatory changes and verify whether training programs are sufficient and appropriately delivered. This helps mitigate implementation gaps and prepares you for examiner scrutiny.
Board and Senior Management Reporting: We deliver clear, insightful reports that translate audit results into business terms. Our deliverables help your board and senior leadership understand your institution’s regulatory posture and focus resources where they matter most.
Conclusion: Turning Audit into a Strategic Advantage
Regulatory shifts are inevitable – and often unpredictable. By elevating internal audit from a retrospective assurance function to a forward-looking, strategic partner, your institution gains the agility to anticipate change, identify vulnerabilities early, and drive meaningful improvements before enforcement deadlines arrive. With audit teams embedded in regulatory risk discussions, conducting readiness reviews, and evaluating the efficacy of your change management framework, you not only reduce compliance risk – you demonstrate to regulators and stakeholders that you’re committed to excellence.
Ready to harness internal audit as a force for proactive compliance?
RADD specializes in forward-looking audit programs that translate regulatory foresight into actionable insights. From risk assessments informed by emerging rules to readiness reviews and board-level reporting, our experts ensure your audit function keeps you one step ahead.
Schedule your consultation with RADD today and transform internal audit into your institution’s regulatory compass.
Click here to book your session.