Survey: Widening remit driving cost of compliance higher, retention lower

Compliance functionality is vital to the future of financial services firms, but many are “struggling to meet their commitments while maintaining an appropriate risk and compliance culture,” according to the “Cost of Compliance Report 2022” published Wednesday by Thomson Reuters Regulatory Intelligence.

The report’s survey closed before Russia’s invasion of Ukraine and the widespread sanctions that followed; Thomson Reuters noted the results would have been “exacerbated by the myriad sanctions imposed on Russia.” Nearly 500 practitioners worldwide responded to the survey, representing global systemically important banks (G-SIBs), banks, insurers, asset and wealth managers, regulators, broker-dealers, and payment services providers.

Even with improving conditions related to the Covid-19 pandemic, generally, in some parts of the world an “uneven recovery” remains, with lockdowns and other restrictions still in place. The adoption of technology, digital transformation, and hybrid working “appear to be permanent changes,” the report stated, leading firms to reassess their approach to compliance.

Last year’s report focused on concerns over supervision of staff from home and the operational difficulties of remote work. At issue in this year’s report is the diversification of compliance and how it encompasses a vast range of regulatory topics, including developments in crypto assets, fintech, artificial intelligence, third-party management, operational resilience, and cybersecurity.

“The range of regulatory topics for which compliance is now expected to provide senior managers with assurance has increased, and the demand for skilled compliance professionals continues to grow,” the report stated. “There is also emerging evidence that the compliance function is having to work hard to continue to be heard at the highest level of the firm.”

In addition to taking on more responsibility, compliance officer’s frustrations have grown because of staff shortages as salaries rise, budgets tighten, and personal liability increases. These factors have deterred skilled workers from joining the profession and spurred a lack of employee retention, according to the report.

Two-thirds of survey respondents said they expect the cost of senior compliance officers to increase, compared to 47 percent in 2021.

Expected turnover in senior compliance staff aligned with similar trends in previous years, with 66 percent of firms expecting turnover to stay the same over the next year.

Budgetary expectations for compliance teams went up 10 percent from 2021, with 62 percent of respondents expecting an increase in budgets.

Nearly half (45 percent) expect the liability of compliance officers to grow in 2022, while more than half (56 percent) of respondents think regulatory focus on culture and conduct risk will increase the personal liability of senior managers.

The top three practical changes that affect the management of potential personal liability were enhanced regulatory training programs (46 percent), deployment of technology (39 percent), and increased use of attestations (36 percent), according to the report.

One anonymous compliance professional based in the United States told Thomson Reuters the biggest culture or conduct risk their firm is facing is how they’re “constantly reacting, instead of proactively researching the risk/compliance landscape and learning what we do not know.”

The report noted the impact of regulation technology (regtech) as a way to stay ahead of the curve. The percentage of compliance teams spending more than 10 hours in an average week tracking and analyzing regulatory developments fell significantly, according to the survey, from 10 percent in 2021 to zero in 2022.

Among G-SIBs, 40 percent said they spend between 8-10 hours and 33 percent between 4-7 hours per week tracking and analyzing regulatory developments.