Thomson Reuters’ newly published 13th annual "Cost of Compliance Report" illustrates the challenges that risk and compliance functions within financial services firms are facing in 2022 and beyond
The COVID-19 pandemic remains problematic for many compliance teams within financial services firms, as lockdowns and other restrictions remain in place in some parts of the world, according to a new report. As an uneven recovery continues, the adoption of technology, digital transformation, and hybrid working appear to be permanent changes that are leading many firms to reassess their approach to compliance.
Thomson Reuters Regulatory Intelligence’s (TRRI’s) newly published 13th annual Cost of Compliance Report, focuses on the challenges expected to be faced by risk and compliance functions within financial services firms in 2022. The report is based on a survey that generated responses from almost 500 practitioners worldwide, representing global systemically important banks, banks, insurers, asset and wealth managers, regulators, broker-dealers, and payment services providers.
You can download a copy of Thomson Reuters Regulatory Intelligence’s (TRRI’s) newly published 13th annual Cost of Compliance Report here
The survey questions remained largely the same as the previous year, and the survey closed before the Russian invasion of Ukraine and the resulting widespread sanctions. The shifting priorities highlighted in the survey results will only have been exacerbated by the myriad sanctions imposed on Russia.
Last year’s Cost of Compliance Report pointed to a need for compliance officers to focus on planning for the future and developing a vision to manage their firms’ evolving compliance and regulatory risks.
The new 2022 report and survey shows the difficulties that compliance officers are experiencing as they try to plan for the future. Competing priorities are compounded by tightening budgets and potential shortages of skilled professionals. Compliance functionality is a fundamental part of the in-house core competency required to secure the long-term future of financial services firms, but many are struggling to meet their commitments while maintaining an appropriate risk and compliance culture.
The demand for compliance skills has increased substantially in the last few years, the report shows. The regulatory environment has diversified, with developments occurring in many areas, such as crypto-assets, fintech, artificial intelligence, third-party management, operational resilience, and cybersecurity. The range of regulatory topics for which compliance is now expected to provide senior managers with assurance has increased. There is also emerging evidence that the compliance function is having to work much harder to continue to be heard at the highest level of the firm.
The 2022 results show a frustration among respondents that, despite compliance’s widening duties, staff numbers are unlikely to grow, mostly because staff costs are increasing and budgets remaining tight. Add to this the increases in personal liability for compliance officers, and it’s perhaps easy to see why capable individuals may be deterred from joining the profession and experienced personnel may choose to leave.
Outsourcing, new technology, and regulatory technology may step in to plug some of the gaps, but all these resources will need to become more sophisticated to make the type of changes required by compliance functions.
According to the new report, the greatest compliance challenges that boards expect to face in 2022 include:
Further, the 2022 report briefly explores some of the main regulatory developments and other drivers that have contributed to the heightened demand for skilled compliance officers as well as the challenges compliance officers are facing.
The findings in the report are intended to help financial services firms with planning and resourcing while allowing them to benchmark their own approaches with those of the wider industry. The experiences of the global systemically important banks are analyzed where these can provide a sense of the stance taken by the world’s largest financial services firms.
What does the ideal future of the compliance function now look like?
“I am concerned compliance is moving backwards, not forwards. That’s due to other challenges — supply chain, pandemic, and non-pandemic issues — that we’re getting less budget, getting more isolated, and returning to check-the-box type of compliance management. We’re in danger of losing the progress we’ve made rather than moving forward into a future state, ideal or not.”
— Anonymous, United States of America
In some firms there may be a perspective that technology could reduce the need for compliance functions. In fact, the increased popularity of regtech is a step down this path; however, technological solutions are often immature and need to show their value before they’re widely accepted. It is imperative that compliance functions, whether manual or automated, showcase their value and necessity to senior managers. A well-resourced, skilled, and managed in-house compliance function remains the most effective way of delivering high-quality compliance at a firm. Indeed, compliance skills are a core competency, and an appropriately resourced compliance function is a key way in which a firm can ensure that it continues to thrive.
Strong compliance functionality is difficult to achieve especially in the current climate. Firms should consider a wholesale review of their internal compliance strategy. A board-sponsored directive that the compliance function evaluate the firm’s post-pandemic position, the impact of new geo-political tensions, the refreshing of skills, and a continued investment in digital transformation all may go some way to untangling competing priorities that compliance leaders now face.
TRRI thanks all respondents for their participation in the survey, offering a continued assurance that responses will remain confidential unless permission to include an anonymized quote has been received.
The special report will be featured on the Compliance Clarified podcast which is available on Google, Apple, and Spotify.
You can see report co-author Susannah Hammond speaking about the report on Reuters Insider here.
