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Regulatory intelligence

The increasing impact of technology on the cost of compliance

Susannah Hammond  Senior Regulatory Intelligence Expert

Stacey English  Head of Regulatory Intelligence

Susannah Hammond  Senior Regulatory Intelligence Expert

Stacey English  Head of Regulatory Intelligence

For most of our customers, remaining compliant with the myriad of global rules and regulations is a requirement of doing business. However, robust compliance comes at a cost.

When we first launched our annual Cost of Compliance survey in 2010, the world was just emerging from the global financial crisis. Now eight years on, the survey has become a voice for practitioners and the frank concerns and views shared by participants has consistently given an insight into the reality and challenges faced by practitioners in all industry sectors.

This year, the survey received an unprecedented response from compliance and risk practitioners from nearly 900 financial services firms across the world including banks, brokers, asset managers and insurers; indicative of the value that this survey is held amongst customers across all types and sizes of firms in all jurisdictions. Last year’s report was read by more than 8,500 firms made up of global systemically important financial institutions (G-SIFIs), regulators, local government, law firms and consultancies.

One of the most striking findings from this year’s survey was that a third of all firms overall (33 percent) and almost half of G-SIFIs (48 percent) are expecting more compliance involvement in the assessment of FinTech and RegTech solutions in the coming year. This is in addition to the 48 percent of all firms which expect to spend more time in 2017 assessing cyber resilience in their firm.

Compliance functions have seen their roles and remit grow and change out of all recognition in the last decade. They have weathered the financial crisis, seen unprecedented volumes of continuing regulatory change and are now expected to handle the technological revolution sweeping the world of financial services in the shape of FinTech.

The rapidly changing use of technology has been described as an inflection point for financial services and it is one which compliance officers need to prepare for in terms of not only the future shape of their firm, but also changing regulatory expectations.

Cost of Compliance bar chart
Source: Thomson Reuters Cost of Compliance 2017

There is a clear and growing regulatory expectation that firms and their compliance functions are both embracing and seeking to make best use of the practical ramifications of FinTech. Compliance functions in particular are likely to come under increased scrutiny if they are not seen to be considering and deploying RegTech solutions to aid regulatory risk management.

Cost of Compliance word cloud
Source: Thomson Reuters Cost of Compliance 2017

As the findings of Thomson Reuters FinTech, RegTech and the role of compliance 2016 survey showed, the industry is in danger of becoming fragmented with those firms whose risk and compliance functions have fully engaged with FinTech (21 percent) at one end of the spectrum, and at the other, 16 percent of risk and compliance practitioners reporting they did not need to be involved with assessing the implications of FinTech in their business.

The critical differentiating factor may be skills combined with a need to revamp older disparate IT systems. Without sufficient appropriate investment in technology and associated skills, firms and their compliance functions will not have the infrastructure to enable them to thrive into the medium to long term, and specifically, the compliance function will not be able to reap the benefits of rigorously customized and deployed RegTech.

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