2018 has already seen the implementation of several substantial pieces of European legislation with global ramifications. MiFID II and GDPR have been highlighted as a key challenge for both boards and compliance functions. What else has our annual in-depth Cost of Compliance survey revealed about compliance trends?
Compliance and risk practitioners from nearly 800 financial services firms across the world, including banks, brokers, asset managers and insurers, have taken part in Thomson Reuters ninth annual Cost of Compliance survey where we found 66% of firms expect the cost of senior compliance staff to increase, up from 60% in 2017. Nearly two thirds (61%) of firms expect the total compliance budget to be slightly or significantly more over the next 12 months, another increase from last year (53%).
The report is a valuable and trusted resource, with last year’s edition being read by more than 9,000 firms and global systemically important financial institutions (G-SIFIs), regulators, local government, law firms and consultancies.
Biggest challenges for compliance officers and the board
Compliance practitioners continue to identify managing and coping with continuing regulatory change as their biggest challenge. For 2018, data privacy and the global ramifications of the implementation of the European General Data Protection Regulation (GDPR) have been specifically highlighted as a key concern, which is a distinct shift from the challenges highlighted for 2017. The biggest challenges facing boards this year have again been highlighted as continuing regulatory change and the intensity of supervisory scrutiny. In line with compliance challenges, data privacy and GDPR have been specifically highlighted as a key board challenge for 2018.
Increasing personal liability
Personal liability continues to be a key concern for compliance professionals with 54% expecting personal liability to increase in the next 12 months. This is likely to reflect the implementation of individual accountability regimes around the world together with the unrelenting focus on regulatory risk as shown by 74% of firms reporting an increase in the focus on managing regulatory risk over the next 12 months.
Increased regulatory liaison
The majority of firms (58%) are expecting to spend more time in the next 12 months liaising and communicating with regulators and exchanges with 16% expecting significantly more contact. There were regional variations with the Middle East (66%), United Kingdom (63%), Asia (63%) and Australasia (62%), expecting to spend the most time liaising with regulators. This, in part, reflects the need for continued personal relationship management and dialogue on regulatory expectations, ranging from culture and conduct to the implementation of personal accountability regimes.
Impact of technology
Technology is having a major impact on compliance. On the one hand, the anticipated benefits of new technology are driving an increase in the compliance function’s involvement in considering solutions, with 41% expecting to spend more time assessing fintech and regtech solutions over the next 12 months, rising to 55% in the G-SIFI population. Balanced against the potential benefits of technology are the heightened regulatory risks associated with cyber resilience, data privacy and IT infrastructure.
Outsourcing remains a major factor in compliance strategy
Almost a quarter (24%) of firms continue to outsource all or part of their compliance functionality. The drivers for compliance outsourcing included the need for additional assurance on compliance processes, a lack of in-house compliance skills and cost. Among the specific compliance activities outsourced were annual policy reviews and email reviews.
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