Thomson Reuters, the world’s leading source of intelligent information for businesses and professionals, has published the findings of its sixth annual Cost of Compliance survey which revealed that regulatory fatigue, resource challenges and personal liability are expected to increase throughout 2015. These findings are a reflection of the sheer volume of regulatory change that continues to be anticipated, as firms navigate both international and domestic rules which have global impact with resulting overlaps.
In the Middle East 80 percent of respondents expect the cost of senior compliance staff to increase, up from 57 percent in 2014. It may be that perceived geo-political risk is at least one factor in recruiting and retaining staff in the region. Another factor is the perception that personal liability is expected to increase (84 percent) in 2015.
The regional variations show divergence, with the Middle East peaking as the region that expects senior compliance staff to cost significantly more in 2015. Two-thirds of respondents expect skilled staff to cost more, which is in line with the two-thirds who expect their available budget to increase.
Respondents from the United States are expecting the lowest rise in personal liability (50 percent), compared with the Middle East where the vast majority of respondents (84 percent) are anticipating an increase. The at least partial good news for Middle Eastern compliance functions is that this increase is matched by an anticipated increase in the cost of staff and available budget.
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 2015 findings as opposed to smaller non-G-SIFIs.
The findings also highlighted the diverse pressures which compliance functions continue to face, with broadening compliance remits, no let-up in the volume of regulatory change and the growing pressure on compliance budgets.
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.
“The survey has become a voice for compliance practitioners,” said co-author, Stacey English, head of Regulatory Intelligence, Thomson Reuters. “The open concerns and views that participants shared provide real insight into the practical reality and challenges of compliance functions around the world.”
Key findings from the 2015 report include:
Ever-increasing regulatory change: compliance officers express regulatory fatigue and overload in the face of snowballing regulations. 70 percent of firms are expecting regulators to publish even more regulatory information in the next year, with 28 percent expecting significantly more.
Rising personal liability: 59 percent of all respondents (53 percent in 2014) expect the personal liability of compliance officers to increase in 2015, with 15 percent expecting a significant increase, compared to twenty-one percent of G-SIFIs who expect a significant increase in personal liability.
Growing resource staffing challenges: from recruitment challenges in finding and retaining suitably skilled staff to increasing pressure on compliance staffing budgets, 69 percent of respondents expect the cost of senior compliance professionals to increase in 2015.
Regulatory matters: are consuming disproportionate amounts of board time, from correcting non-compliance and preventing further sanctions to implementing structural changes to meet new rules.
“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,” says Phil Cotter, managing director, Risk, Thomson Reuters. “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 non-compliance. 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.”
Increased Cost of Compliance
While a skilled, high-quality compliance function is expensive to build it will be one of the best investments for a firm and its senior managers. Many firms have employed more compliance staff but there is a growing need for more truly skilled compliance officers. The results show a consistency of expectation that the costs of skilled compliance staff will continue to rise, but the growing issue is in the availability of high-quality skills and experience. Over two-thirds of firms are expecting skilled staff to cost more. Thirty-two percent of the larger G-SIFI firms expect the cost of senior compliance professionals to be significantly more. The major reason cited for the expected increase in the cost of senior compliance professionals for the full population was the demand for skilled staff and knowledge (82 percent). More than two-thirds of firms (68 percent) are expecting an increase in their compliance budget this year with 19 percent expecting significantly more. G-SIFIs are expecting a noticeably greater increase in compliance team budgets with one third (33 percent) expecting significantly higher budget.
Complex Regulatory Change
The speed and sheer breadth of regulatory change is an ever-present challenge for firms. According to the survey, 70 percent of respondents expect an increase in information published by regulators and exchanges. The last few years have seen a gentle decline in the level of the expected increase in regulatory information being published by regulators and exchanges (2011: 83 percent; 2012: 84 percent; 2013: 81 percent; and 2014: 75 percent). While the baseline remains high with expected increases, any decline, even if it is only in the rate of increase in the volume of regulatory information published, is to be welcomed.
Broadening Compliance Remit
As well as the growing focus on culture and conduct risk that needs to be considered when assessing regulatory change the remit of compliance functions is expanding. One particular area that is beginning to affect the compliance arena is technology, IT risk and the issues relating to cyber crime and to resilience. For firms, cyber risks are multi-faceted and must not simply be left to the IT function. Compliance functions need to be engaged in the consideration of risks to the business (and by association the potential effect on their customers) from an attack on the wider financial services infrastructure, as well as the implications of a direct attack on the firms themselves.
“Given the relentless pace of change and the need to implement layers of often mismatching cross-border regulatory requirements, compliance officers may wish to begin to think through how they can help their firm to “future proof” changes made, and in turn get the very best value out of their investment made into systems, technology and personnel,” said co-author, Susannah Hammond, senior regulatory intelligence expert, Thomson Reuters. “A firm’s ability to “future proof” will become ever more critical throughout 2015 as many big implementation programs for major complex legislation take effect.”