Nine out of 10 (89 percent) financial services industry executives globally expect continued cost increases in their compliance departments over the next two years, according to a report by Accenture based on a survey of 150 compliance executives conducted between December 2016 and January 2017.
“An explosion in digital data, a finite talent pool of compliance professionals to draw from and a more-complex risk ecosystem are presenting serious cost, resource and efficiency challenges for compliance,” said Steve Culp, senior managing director and global head of Accenture’s Finance & Risk practice.
Among the executives predicting the continuation of higher spending on compliance over the next two years, nearly half (48 percent) anticipate increases of 10 percent to 20 percent and nearly one in five (18 percent) expect increases of more than 20 percent, according to Accenture’s fourth annual compliance risk report, “Dare to be Different.” The number of institutions that currently spend more than 5 percent of their net income on compliance jumped from 16 percent in December 2015 to 23 percent in December 2016, despite compliance headcount numbers largely remaining flat.
When asked to identify the top three compliance risks they believe will be the most challenging for their organization to manage within the next 12 months, respondents most often cited fraud and financial crime risk (cited by 48 percent of respondents), business risk (47 percent) and cyber risk (45 percent).
“With the cost of maintaining compliance rising and new risks continuing to emerge, it’s imperative that firms find a path to more sustainable compliance costs,” said Culp. “Firms should be thinking and investing strategically in terms of advanced technologies that can bring stable, cost-effective solutions that will enhance the function’s performance.”
Compliance functions are struggling to keep pace with the industry’s rapid digital transformation, according to the report. Customer demand for digital services such as online banking, robo-advice and the online purchase of insurance products is driving a significant increase in business volume across the sector, which is in turn stressing control frameworks and giving rise to new risks, such as those related to cybersecurity and data privacy.
“Technology-adoption inertia is the greatest risk to the compliance department’s future effectiveness as a strategic advisor and risk manager,” said Samantha Regan, a managing director in Accenture Finance & Risk who leads the company’s Regulation and Compliance practice. “The pace of change will only accelerate and the risk ecosystem will continue to grow in complexity, underscoring the critical importance for compliance departments to make effective use of advanced technologies if they want to remain effective and relevant in the digital age.”
The report identified three specific models towards a more sustainable compliance function – Innovators, Integrators and Improvers. Innovators are investing in advanced analytics, artificial intelligence and managed services as they seek to establish leadership positions, while Integrators are taking a collaborative internal approach with other functions to build a strong second line of defense, which includes shared infrastructure, skills and capabilities. The final group, Improvers, are taking a more cautious approach with a view to potentially leap-frogging competitors with emerging best practices.
For additional information or to view “Compliance: Dare to be Different” click on the link https://goo.gl/4PQf9t.
For the report, Accenture surveyed 150 compliance officers at banking, insurance and capital markets firms across 13 countries in the Americas, Europe, Asia-Pacific and Latin America. Countries represented include Australia, Brazil, Canada, China (Hong Kong), France, Germany, Italy, Japan, Singapore, Spain, Switzerland, the United Kingdom and the United States. Of the respondent organizations, 45 percent have annual revenues between US$1 billion and US$10 billion; 9 percent have annual revenues between US$10 billion and US$20 billion; and 46 percent have annual revenues greater than US$20 billion. The online survey was conducted between December 2016 and January 2017.