Cost of Compliance report 2015
The survey forming the basis of the report, written by Stacey English and Susannah Hammond of Thomson Reuter’s regulatory intelligence team, picked the brains of close to 600 compliance professionals across the globe in an attempt to highlight the realities of compliance today, and the challenges that they expect to face within the next 12 months. Reponses were received from individuals and firms based in several continents and throughout all sectors of financial services, with English and Hammond explaining that the findings are, ‘intended to help regulated financial services firms with planning, resourcing and direction’.
Time Consuming Compliance
What is obvious from the report is the sheer pressure that ever increasing and changing compliance obligations are placing on firms. The governor of the Bank of England and chair of the Financial Stability Board, Mark Carney, recognised the ‘risk of fatigue’ in November 2014 but considered it imperative to press on regardless. The results of this are clear to see in the respondents’ comments:
- More than a third of firms spend at least one day of their working week monitoring and assessing regulatory change. ‘Global regulatory change is creating the biggest challenge due to inconsistency, overlap and short time frames’.
- The changes are affecting businesses at board level, with ‘disproportionate amounts of board time’ spent not just on ensuring future compliance, but on rectifying and containing historic non-compliance.
- Whilst, what are referred to as ‘global systemically important financial institutions (G-SIFIs)’, may have the budgets and manpower to devote to ensuring compliance, it is apparent that the resources of firms outside of this exclusive group are stretched.
Whilst the above may come as little surprise to many working within the sector, it certainly poses the question of whether time could perhaps be better spent elsewhere in the business. Unfortunately, however, with another year of record fines behind us and the first stages of implementing major and complex legislation ahead, the responses suggest that things will get worse before they get better:
- 70% of firms expect the amount of regulatory information published to increase within the next 12 months, with 28% of these expecting significantly more.
- 59% expect the personal liability of compliance officers to increase over the next 12 months, no doubt increasing the pressure upon them.
- The cost of senior compliance staff, necessary to assist with minimising the current and forthcoming risks, is expected to increase by 69% of all respondents, and 75% of those respondents based in the UK and Europe. The vast majority of respondents considered the reason for this to be, unsurprisingly, the increase in demand for skilled staff and knowledge, in turn caused by the existing lack of such staff.
Adapt or perish
English and Hammond’s suggestions in respect of where to go from here, range from board members becoming more risk-aware (in order that the required culture may trickle down from the top of the business) to lobbying in an attempt to ‘influence the external regulatory environment’. Future proofing can be attempted by building ‘an inherent level of flexibility into all technological compliance solutions implemented’ but it is clear that all of these changes will be costly and likely require specialised staff.
With resources already stretched, it remains to be seen whether the bulk of those in the financial services markets will be able to increase the budgets and time allocated to countering the increasing complexity of regulatory changes. It is, however, becoming increasingly apparent that, in order to avoid 2015 setting new record highs for fines imposed, the firms affected will have little choice but to stretch resources further.