Compliance officers have two fears likely to come true in the months ahead: increased regulatory fatigue and overload; and the threat of increasing personal liability. Those observations come from the latest edition of Thomson Reuters’ annual “Cost of Compliance Survey.”
“After several difficult but broadly speaking positive years for compliance functions, the 2015 findings show the first warning signs of potentially serious resource constraints,” the study says.
“The pendulum needs to begin to swing back at least in part toward the business itself to allow for business improvement and development, rather than having all change capacity and capability taken up by regulatory issues,” it adds. “That is not to say that boards should lose their focus on regulation and the need for a compliant “tone from the top”, but it needs to be brought back into balance with managing the business rather than the rulebook.”
Thomson Reuters surveyed nearly 600 compliance practitioners from financial services firms in Africa, the Americas, Asia, Australia, Europe, and the Middle East. The study was conducted between November 2014 and January 2015.
Key findings from the report:
Fifty-nine percent of all respondents expect the personal liability of compliance officers to increase in 2015.
Sixty-two percent of compliance officers are expecting to spend more time liaising and communicating with regulators over the next 12 months.
More than a third (38 percent) of all firms are already dedicating at least a whole working day every week to tracking and analyzing regulatory developments. This figure rises to 59 percent for G-SIFI (global systemically important financial institutions) respondents
More than two-thirds of firms are expecting an increase in their compliance budget this year; 19 percent expect a significant increase.
Due to recruitment challenges in finding and retaining suitably skilled staff, 69 percent of respondents expect the cost of senior compliance professionals to increase in 2015. “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,” the study says. “Many firms have employed more compliance staff but there is a growing need for more truly skilled compliance officers.” In the Middle East, 80 percent of respondents expect the cost of senior compliance staff to increase, up from 57 percent in 2014, and 75 percent of respondents in the UK and Europe expect that cost to increase. Regions where the costs are not expected to increase as much are the United States and Canada (60 percent, down from 70 percent in 2014).
Interaction and alignment between control functions continues to show a lack of coordination. The survey found that nearly half of compliance departments are spending less than an hour each week working with internal audit. “Alignment between risk, compliance, legal and internal audit functions will help to drive high-quality risk management information,” it says. “The challenges for 2015 will be to continue to develop and refine qualitative reporting mechanisms and also to align reporting more closely with that of the risk and internal audit functions.”
Boards need to be provided “with regular, succinct reports” that provide a consolidated and overarching view of the state of risk management, including, specifically, culture, within their firm, the report says. To achieve this, risk, compliance and internal audit need to come together to create a single combined view on the state of risk management. “It will not work if, for example, internal audit is using a red, amber, green reporting system; compliance reports on a one, two, three basis; and risk has a high, medium and low grading structure,” it adds.
The study also delves into the need for compliance officers and boards to plan for future needs. “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,” says co-author, Susannah Hammond, senior regulatory intelligence expert for Thomson Reuters.
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