Compliance (and the legislative changes involved) are the biggest single driver in how the finance sector is currently evolving.
Above is a slide show provided courtesy of ComPeer Limited, a research and benchmarking firm for the UK Wealth Management sector. It is from their "Compliance Tsunami" event held in London earlier this month. The presentation relates to the UK, but in my experience these are exactly the same problems/challenges facing the sector globally. Nik Lysiuk, a senior analyst at ComPeer Limited, has been kind enough to pen a guest blog post on their findings.
The Compliance Tsunami From ComPeer Limited
91% of interviewees said that the pace and volume of regulatory changes across 2012 and 2013 was high or very high. The biggest problem when dealing with the workload was not the inherent difficulty in understanding Policy Statements, nor the shortfall in resources - it was the prolonged time and effort needed to get a grasp on a given interpretation of the policy. The overwhelming suggestion was that collaboration was needed between the firms and the FCA, and the trade bodies were all praised for their work in this area.
Regulation hitting the UK that ought only to act as a framework within which firms operate, has actually become a reason that firms have changed their service provision. Almost a third of interviewees mentioned that FATCA had resulted in them curtailing the provision of services to U.S clients. With Suitability, we saw that firms were turning to ‘ready-to-go’ investments and now have more scalable business models. Recent ComPeer research shows that only 2% of firms were able to achieve scalability between 2009 and 2012, so this can only be a good thing.
What’s quite interesting is firstly that firms did not really think of compliance as a strategic tool and secondly, if it was strategic, there were no clear ideas on how it could be harnessed. There’s a bit of a conflict here between the vast amount of regulation that firms have to deal with, and the fact that there is no strategy to deal with it. RDR and Suitability were the two projects mentioned most often as those that took up large amounts of time - firms estimated that on average, around 80% of the work on each project would be done in any case, without the FCA forcing them to do it, which is a significant confirmation of the FCA’s intent.
Regulation was thought to be the major driver of compliance department costs. When asked how they would rate the level of costs, 17% rated them as ‘too low’ indicating that more resources are needed to meet the regulatory workload. The majority rated their costs as acceptable and the majority also rated the difficulty in dealing with compliance as high or very high, the implication being that resources match the task and the current high level of regulation can be sustained in future.
To what extent did interviewees feel that the front office has been impacted by the regulatory environment? The overwhelming response was that it had been hugely affected. Some firms said that they had tried to shield the front office from compliance, where possible, but that inevitably they had a responsibility because they were so close to the client and were better able to gather the required data.
90% of respondents said that it was challenging for their IT department to keep pace with regulations, but that they saw the requirements as an opportunity for general updates to their systems. 60% said that they did not use specialist software for the management of compliance and in fact, no two people mentioned the same software package. This could be because a catch-all package simply isn’t suitable for managing compliance, or perhaps there is a gap in the market for service providers. With regard to the role of social media, firms were still broadly unsure about how to harness the power it could bestow. The regulator is due to issue official guidelines this month, so this could be an opportunity to really grasp the idea of social media.