There’s another certainty alongside death and taxes: regulation – particularly for the Financial Services sector. But less obvious are the costs associated with compliance, and where these lie in an organisation.
To find that out, information services giant Thomson Reuters polled compliance and risk practitioners in nearly 800 financial services firms worldwide, including banks, brokers, asset managers, and insurers. Its ninth annual Cost of Compliance report highlights key trends in the sector.
2018 saw the implementation of MiFID II and GDPR, which were both cited as core challenges by boards and compliance functions. This may be why 66 percent of them – a year-on-year increase of six percent – expect the cost of senior compliance staff to increase.
Indeed, nearly two-thirds of those surveyed (61 percent) expect the total compliance budget to be slightly or significantly higher over the next 12 months – eight percent more than the number making this prediction in 2017.
The costs themselves are significant. Globally, banks dedicate 10-15 percent of staff to compliance and an average of five to 10 percent of annual turnover – time and money that could otherwise be focused on identifying emerging risks in the financial system, suggests the report.
Unsurprisingly, compliance practitioners believe staying on top of regulatory change is their biggest challenge, along with intense scrutiny in the sector. A majority of firms (58 percent) believe they will spend more time communicating with regulators and exchanges this year, with 16 percent expecting significantly more contact.
But personal liability is a concern for compliance professionals too, with over half (54 percent) expecting that to increase this year. According to Thomson Reuters, this reflects the implementation of different accountability regimes around the world, together with banks’ unrelenting focus on regulatory risk. Nearly three-quarters (74 percent) of firms reported a tighter focus on regulatory risk management.
So what of RegTech and FinTech solutions? Technology is certainly having an impact on the compliance function, says the report.
On the one hand, its anticipated benefits are pushing more compliance professionals into being involved in technology decisions. Forty-one percent expect to spend more time assessing applications over the next 12 months, rising to 55 percent among global systemically important financial institution (G-SIFIs). Demonstrably, the technology is being accepted at the highest level.
But on the other, RegTech’s and FinTech’s promised benefits should be balanced against the “heightened regulatory risks associated with cyber resilience, data privacy, and IT infrastructure”, cautions the report.
Not every institution is trying to go it alone, however. Almost one-quarter (24 percent) of firms still outsource all or part of their compliance function. Cost, the need for process assurance, and a lack of in-house compliance skills are among the contributing factors, says the report.
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