Massive Spending on Compliance: A Necessity?
The cost of compliance in this changing world of regulation is constantly increasing. According to the Thomson Reuters Regulatory Intelligence service, the number of international regulatory alerts has topped 200 daily and is doubling every two years. For most financial institutions, this means that costs of compliance are spiralling and can represent up to 10% of their operating costs. Spending on compliance is necessary especially when the costs of non-compliance are considered. For example, a US regulator had fined a global bank $3,750,000 for inadequate record keeping. Such fines can be avoided by complying with regulations.
According to a survey by Thomson Reuters, it was found that:
69% of firms are expecting regulators to publish even more regulatory information in the next year
More than one-third of firms spend at least a whole day every week tracking and analyzing regulatory change
Two out of three are expecting their senior skilled staff to cost more
60% of respondents expect the personal liability of compliance professionals to increase.
Three-quarters of firms are expecting the focus on managing regulatory risk to rise
Compliance, a mainly manual process, has led to many firms responding to the escalating volume and complexity of financial regulation by throwing people at the process. Since the 2008 Global Financial Crisis, there has been an increase in compliance staff, resulting in an inflation of costs. However, this solution is not practical in the long run as it incurs high costs making it unsustainable for firms. People-heavy compliance efforts are thus no longer cutting it. With digitalisation, there is a need to adopt new innovations so as to better tackle such issues to stay on top of the changing regulations.
Regulatory Technology (RegTech), an emerging technology, provides vast opportunities for businesses to mitigate risks– operationally, reputationally, and financially. RegTech solutions automate and streamline compliance processes whilst driving down costs. This automation also helps risk managers to process data in a more efficient and accurate manner. From identifying high-risk clients to identifying suspicious transactions, RegTech is the key to ensuring compliance. It ensures transparency, accuracy, and accountability, thereby safeguarding the interests of both customers and the firm. Hence, with the emergence of stricter regulations, it is key to make the shift to technology like RegTech so as to stay compliant.