As pressure on the compliance function increases in a rapidly changing and increasingly complex regulatory and operational landscape, nearly 90% of financial services firms reported an increase in compliance spending over the past five years, one in 10 saying costs have doubled.
With this in mind, 44% of companies plan to invest more in regtech solutions over the next 12 months to address growing pressure on the compliance function, while a further 41% plan to continue investing the same amount as have done so in the previous 12 months.
However, the cost of compliance is rising with demand, with nearly all financial firms facing increased compliance costs over the past five years, while costs have doubled for one in 10 people.
This idea was brought to light by steel eye in his ‘Compliance review‘, which was largely based on the compliance and data analytics technology company’s survey of 170 senior compliance and risk professionals working in the financial services sectors in the UK and US .
Regulatory changes and data fragmentation continue to be a challenge
Of the 170 professionals surveyed, 44% say they struggle with data management challenges. This included the layering of communications and transactions to mitigate the risk of market abuse, the effective use of management information (MI) to demonstrate risk, and the consolidation and standardization of structured and unstructured data.
A fifth of companies identified having to keep pace with regulatory changes as the biggest challenge in meeting regulatory obligations.
Opinions were divided on relations with regulators. While 42% said it was now harder to deal with regulators, 48% said they now find it easier to deal with the regulator, which could be due to technology making compliance processes more streamlined and simpler.
When asked if they think companies are well equipped to handle tougher regulatory rules over the next five years, which is encouraging, three-quarters of respondents think financial services companies are doing well. position.
Compliance teams burdened with fragmented and manual processes
Administrative and repetitive tasks dominate the work of compliance professionals, highlighting the need for greater automation and digitization within the industry. In light of this, half of respondents indicated that at least half of their company’s compliance staff engage in administrative or repetitive tasks.
The survey demonstrated a clear trend towards centralized management of compliance, with 56% of respondents working within a team that oversees compliance for all branches and regions in which the company operates.
Meanwhile, only 12% would have deployed a decentralized model where compliance is managed directly within individual jurisdictions, while this is understandably more common for larger organizations at 18%.
In contrast, 88% of small business compliance management is completely centralized. Centralizing the compliance function can allow companies to be more strategic and enable richer learning across multiple jurisdictions. However, it depends on a strong database for the business as a whole.
Regulation, monitoring and data management top the priority list
When asked about their top two investment priorities for the coming year, regulatory reports ranked first.
However, breaking this down by region, it becomes clear that regulatory reporting is a major area of investment in the UK, while communications oversight is the top priority in the US, especially among banks.
This is not surprising given that US regulators are severely restricting disclosure rules. Last year’s $200 million fine for JP Morgan speak Security and Exchange Commission (SEC) has demonstrated the importance of proper control of communications with employees.
Companies are reaping the rewards of machine learning in compliance
Thirty-one percent of companies said they had fully implemented some degree of AI or machine learning (ML) in their compliance processes. Another quarter are investing in technology but are still in the implementation stage.
The subsections of large companies and US-based respondents are even further along this journey, with 75% and 95%, respectively, having partially or fully implemented AI and ML in compliance. And those who have implemented AI are reaping the benefits, including a marked improvement in the quality of their MI.
However, many companies have yet to harness the potential of AI. Forty-four percent have not started looking at AI compliance options. One of the causes of slow adoption could be the need for a strong database, which is necessary for successful AI deployments.
Speaking on the challenges facing today’s compliance professionals, SteelEye CEO Mast Black-smith describes “keeping abreast of regulatory changes, improving data quality, and managing risks and controls within the business” as some of the key competitors.
However, the good news is that the benefits of using technology to solve complex compliance issues are now fully realized, with Smith adding that “85% plan to invest the same amount or more in regtech over the next 12 coming months”.
“Technology and data are key to future-proofing compliance processes and procedures,” he comments. “It’s great to see that a large portion of companies see improving data quality as a top priority and that most companies are actively investing in technology.”
Smith adds that by prioritizing how disparate data sets are consolidated and making better use of data, companies can “respond more easily to regulatory changes and other compliance challenges that will emerge later.”
The company remains “hopeful” that compliance programs and compliance teams will be made more efficient by the influx of these investments.
“This can allow the compliance function to move from reactive investigations and firefighting to a more proactive model of compliance management and risk detection.”