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Cost of Compliance

Cost of Compliance

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Published by: corruptioncurrents on Mar 13, 2012
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05/13/2014

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COST OF COMPLIANCESURVEY 2012
Stacey English and Susannah Hammond
REUTERS/
TORU HANAI
 
Thomson Reuters GRC surveyed more than 500 compliancepractitioners rom nancial services rms around the world betweenNovember 2011 and January 2012 to canvass their views on the costso compliance and their greatest challenges or the year ahead. Theresults refect the continued ocus on regulation and compliance inthe atermath o the global nancial crisis and the ever-increasingcomplexity and volume o requirements. Similar research wasundertaken in prior years and comparable results are included whereapplicable.The responses received covered Europe, the Americas, Australasia, Asia,Arica and the Middle East. They represented rms rom across thenancial services sector, including banks, insurers and und managers.Feedback came rom nancial services rms o all sizes, ranging romthose whose compliance departments comprised just one person toglobal conglomerates with much greater resources.It is clear rom both the number o respondents and the rankness o thedetailed comments received that compliance ocers rom all regulatedrms are, more than ever, under severe pressure. It is evident rom theresponses that many compliance ocers have now reached saturationpoint.Firms’ executive management and regulators alike need to understandand address the increasing strain on compliance. A vital actor in easingthe pressure on the compliance unction is the provision o adequateskilled resources to meet the growing demands and challenges. Theoten under-valued task o compliance can be made substantiallyeasier where senior managers visibly and vocally demonstratesupport or the compliance unction and promote a compliant culture.Similarly regulators around the world must start to take account o therelentless pressure on compliance unctions to assimilate and drive theimplementation o the ever-increasing burden o regulatory change, ithat change is to be eective.
“A Chie Compliance Ocer whodoes not have the ull support andengagement o senior managementand the board is not going to beeective.”
Carlo V. di Florio, Director, Ofce o Compliance Inspections andExaminations, U.S. Securities and Exchange Commission, January 2012.
The majority o the respondents had ewer than ve people in theirteam to manage the ever-growing compliance obligations or theirorganisation. The survey asked about the proportion o time spent onkey compliance activities and the chart above provides a snapshot othe average compliance week based on the most popular responses.While this illustration covers core activities, it is only a proportion ocompliance obligations. When other crucial value-added roles andactivities are also actored into the working week – activities such asdealing with queries rom the business, undertaking investigations orpast business reviews, and managing regulatory visits and relationships– it is clear why compliance teams are so stretched. On average, halo the typical compliance ocer’s working week is taken up with thebare non-optional basics. This result again leads to the conclusion thatmany compliance ocers are reaching breaking point.
 
Typical week o a compliance ocer
TRACKING, ANALYSING AND INFLUENCING REGULATORY CHANGE
Tracking potential and actual change is essential to ensure that the rmis aware o and prepared to meet regulatory requirements. Complianceocers around the world are under no illusions that 2012 will bringeven more regulatory inormation rom both regulators and exchanges.Almost hal o respondents thought that the level o regulatoryinormation would be signicantly higher over the next year.Overall, 84 percent o compliance ocers surveyed believed the fow oregulatory inormation would increase in 2012. These expectations havesteadily risen over the past ew years and are supported by nearly a 16percent increase in the number o regulatory alerts tracked by ThomsonReuters GRC year on year.
Over the next 12 months, I expect the amount o regulatoryinormation published by regulators and exchanges to be:
SIGNIFICANTLY LESS THAN TODAYSLIGHTLY LESS THAN TODAYTHE SAME AS TODAY
1%1%14%39%45%
SLIGHTLY MORE THAN TODAYSIGNIFICANTLY MORETHAN TODAY
2
 COST OF COMPLIANCESURVEY 2012
TRACKING AND ANALYSINGREGULATORY DEVELOPMENTSBOARD REPORTINGAMENDING POLICIESAND PROCEDURESLIAISON WITH CONTROLFUNCTIONSOTHER COMPLIANCE TASKS INCLUDING:COMPLIANCE RISK ASSESSMENTREGULATORY LIAISON AND EXAMINATIONMONITORING AND TESTINGINVESTIGATIONSTRAININGPROVIDING ADVICE TO THE BUSINESSRESPONDING TO PROPOSED LEGISLATIONREGULATORY REPORTING
 
The change in 2012 will not just be in terms o volume and speed odevelopments but most crucially in the undamental nature o manyo the expected publications and announcements that will aect bothregulators and rms. For regulators the biggest changes include thesplitting apart o the UK Financial Services Authority, an increase in thedirect regulatory power o the European Supervisory Authorities and theexpansion o several new and existing regulatory agencies in the U.S. asa result o the Dodd-Frank Act. For rms, undamental changes rangerom the proposed shit o the regulatory perimeter to include shadowbanking to the orcible separation o wholesale and retail business ormany banks and the increasingly global reach o regulations such as theUK Bribery Act and the U.S. Foreign Account Tax Compliance Act.Compliance unctions devote extensive skilled resources to track andassess the impact o regulatory change. This continues to be an oneroustask. More than a third o respondents spend more than an entireworking day each week considering the changes and one th spendin excess o 10 hours during an average week. This level o activity isconsistent with ndings or the previous year. Despite the increasingvolume o regulatory change, compliance teams do not appear tohave the capacity to devote the extra resources needed to adequatelyconsider these additional developments. While there are slightgeographic variations in the results it is clear that the sheer volume oongoing regulatory change is a global issue. The ndings show that theissue is particularly acute in Asia, where a third o compliance ocersare devoting more than 10 hours a week to tracking and analysingregulatory change. This is ollowed closely by the UK where 25 percento rms devote in excess o 10 hours to this activity.
In an average week, how much time does your compliance teamspend tracking and analysing regulatory developments? (in hours)In an average week, compliance teams spending more than 10 hourstracking and analysing regulatory developments (by region)
Compliance ocers not only need to track and analyse actual andproposed regulatory change but must also stay up to date with wherethat change is coming rom and how best to infuence proposals onbehal o their rm. This, again, creates urther demands on resources.A third o respondents anticipate that there will be a greater needto devote resources to infuencing and lobbying the shape o utureregulation this year. Two thirds o respondents, however, anticipatethey will not have the capacity to infuence regulatory developments –another indicator that compliance unctions have reached saturationpoint.
“It is vitally important that the industrycontinues to invest time to engage. Wellarticulated pan-European industry input iscareully listened to and can infuence policy-making. It is vital that the sector organisesitsel to contribute ully to such initiatives.”
David Lawton, Acting Director, Markets, UK FSA, January 2012.
UPDATING POLICIES AND PROCEDURES
To coincide with changes resulting rom the implementation o newrules, the compliance unction is responsible or ensuring that thenecessary updates are made to all relevant internal policies andprocedures. The results o the survey show that 40 percent o allcompliance unctions spend at least hal a working day every weekon the burdensome, but important, task o updating and amendingpolicies and procedures. This is to refect the latest regulatoryrequirements as well as new business activities and actions arising rommonitoring work and reviews. These policy and procedural changesgenerate a stream o other necessary activities, including the associatedcommunication and training, the inclusion in all relevant monitoringplans, and the need to maintain an audit trail o changes. Consistentwith previous years, the resources devoted to the ongoing maintenanceo up-to-date policies and procedures remains high across the world.There are some regional variations. The results show that Asian rms inparticular are devoting relatively more resources to keeping policies andprocedures up to date, with nearly a third spending in excess o a ullworking day every week.
0%5%10%15%20%25%30%35%UK US ASIA MIDDLEEASTREST OFWORLD
32%27%4%15%22%
LESS THAN 11 TO 34 TO 77 TO 10MORE THAN 10
accelus.thomsonreuters.com
 
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