As the financial industry makes its way out of one of the most tumultuous periods in its history, there have been some hard lessons learned and new paths carved out of necessity. Thomson Reuters has been assessing the new approaches in regulation and compliance, and the resulting implications over the last six years in its annual Cost of Compliance survey — to gain insight into the reality and challenges of compliance functions around the world. Over time, the survey results tell the story of an evolving industry adapting to new norms.
In 2015, it’s clear that practitioners expect regulatory fatigue, resource challenges and personal liability to increase throughout the year, the survey found. These findings reflect the sheer volume of regulatory change anticipated as firms navigate both international and domestic rules with overlapping global impact. According to the survey, global systemically important financial institutions (G-SIFIs), given their larger size of operations and resources, are better equipped to manage these challenges than smaller non-G-SIFIs.
Thomson Reuters surveyed nearly 600 compliance practitioners from financial services firms including banks, brokers, insurers and asset managers around the world encompassing Africa, the Americas, Asia, Australia, Europe and the Middle East. The survey builds upon annual surveys of similar respondents, offering year-on-year trends and developments intended to help regulated financial services firms with planning, resourcing and direction.
After several difficult but broadly speaking positive years for compliance functions, the 2015 findings show signs of potentially serious resource constraints. Compliance functions continue to face diverse and demanding pressures, with shifting supervisory expectations, no relief in the volume of regulatory change and the start of many of the big implementation programs for major complex legislation.
Key findings from the 2015 report include:
- Volume of regulatory change: At the heart of the survey, year after year, is the sheer volume that continues to be expected. Compliance officers are experiencing regulatory fatigue and overload in the face of snowballing regulations. Seventy percent of firms are expecting regulators to publish even more regulatory information in the next year, with 28% expecting significantly more. When is it too much? Does the pendulum need to swing back a bit? Are boards preoccupied with the business of regulation rather than with actually improving the business?
- Rising personal liability: 59% of all respondents (53% in 2014) expect the personal liability of compliance officers to increase in 2015, with 15% expecting a significant increase, compared to 21% of G-SIFIs who expect a significant increase in personal liability. While 2014 was a year of record fines, it was also a year when the sweep and scope of non-monetary enforcement action came to the fore as regulators used ever-more creative approaches in their drive to instill “good” behavior in firms and individuals.
- Growing resource staffing challenges: From recruitment challenges in finding and retaining suitably skilled staff to increasing pressure on compliance staffing budgets, 69% of respondents expect the cost of senior compliance professionals to increase in 2015.
For any regulated firm to thrive or at least survive into the medium- and longer-term, consistent investment needs to be made in the risk, compliance and control functions. We have seen an ongoing rise in compliance leaders expressing regulatory fatigue as they are being held to increased accountability amidst an ever-escalating volume of regulation, the expectation of being knowledgeable, and the added pressure of being exposed to record fines for noncompliance. With heightened scrutiny and accountability, it has never been more vital for boards to continue to support the compliance function and senior leadership with the budget, resources and tools to help ensure a culture of transparency, trust and adaptive-change in behaviors throughout firms.