Without question, compliance functions have matured in the decade since the financial crisis with many financial firms enhancing their compliance capabilities to embrace the new range of disciplines and specialties required.
The risk and compliance functions for financial services firms around the world are at an inflection point between strained budgets and needed investment, according to the new Cost of Compliance Report 2020, published by Thomson Reuters Regulatory Intelligence (TRRI).
Indeed, there are emerging concerns regarding resources, skills and a need to balance budgets and compliance costs. This is set against a background — even before the impact of the COVID-19 pandemic is considered — of continued uncertainty about culture and conduct risk issues, regulatory reform, and the growing threat of personal liability.
The 11th annual survey on the cost of compliance closed before the profound ramifications of COVID-19 became apparent. The survey gathered more than 750 responses from risk and compliance practitioners around the world, representing global systemically important financial institutions (G-SIFIs), banks, insurers, brokers, wealth managers, and payment services providers. While the report does consider the regulatory response to COVID-19, it could not take into account the specific views of respondents.
To update the report for the impact of the pandemic, TRRI has launched a follow-up snapshot survey of five free-text questions to enable participants to share their evolving concerns. (Take the Cost of Compliance snapshot survey. The survey should take no longer than 5 minutes to complete and, as ever, all information will be treated in the strictest of confidence and results will be displayed anonymously.)
The results of the snapshot survey will form part of a special report on the COVID-19 cost of compliance which will be available to download in the third quarter of 2020.
Challenge to operational resilience
The challenges and issues considered in the cost of compliance report will not have gone away because managing the myriad implications of COVID-19 has become a primary focus for firms. Indeed, many of those challenges have become more profound given the additional strain placed on the operational resilience of all financial services firms due to the pandemic.
For more on the Cost of Compliance Report 2020 view this video interview with author Susannah Hammond of TRRI
Compliance officers themselves will be front and center in helping their firms navigate the unprecedented chaos and disruption caused by the pandemic. In a new question posed for the second decade of the Cost of Compliance Report, participants were asked about the characteristics of the ideal compliance officer.
The aftermath of the 2008 financial crisis saw a focus on culture and conduct — the pandemic will test adherence to firms’ approach to culture and conduct risk just as it has been testing firms’ operational and prudential resilience plans. Those firms which previously took a simple tick-box approach to culture and conduct risk are likely to be vulnerable to risky behavior and the associated poor customer outcomes.
While even the strongest of firms will feel the impact of COVID-19, those that have built a firm-wide risk aware approach to culture and conduct risk will emerge ahead of those who simply paid lip service.
Taken as a whole, the results of the 2020 survey indicate an inflection point for financial services firms, with all the hallmarks of the cycle being seen to turn again. It is too early to tell the how the virus will influence that inflection, but already firms are asking for the postponement of various regulatory initiatives so they can focus on managing current crisis-related events.
Firms need to appreciate that in 2020 it would be potentially very unwise to reduce the budget available for risk and compliance. There will be competing priorities, of course, but in troubled times firms need a well-resourced, highly skilled compliance function more than ever. If at all possible, firms should consider investing in skills at all levels, in operational resilience (particularly in terms of IT infrastructure), and in embedding their approach to culture and conduct risk.
You can download TRRI’s 11th annual Cost of Compliance Report 2020 here.