Jobs: The True Cost of Compliance - Shield

JOBS: THE TRUE COST OF COMPLIANCE

A closer look at the costs of compliance

SLIDE OUTLINE

POINTS FOR DISCUSSION Introduction Adding insult to injury software replaced human capital A closer look at the costs of compliance Slipping through the cracks

Financial firms are caught up in a seemingly unwinnable paradox. Permission to operate requires meeting regulatory compliance laws and policies as defined by the national and global financial authorities by which the firms are governed. The global pandemic spiked compliance costs as Compliance Officers and regulators grappled with how to manage an overnight shift from traders operating in secured environments – to working from their kitchens. As it is often the case with technology advancements, the true cost of those advances should not be measured in currency, it should be measured in jobs.

INTRODUCTION

BASIC INFORMATION

Adding insult to injury Although regulators temporarily relaxed reporting and some other aspects of compliance following the arrival of COVID, all firms recognized that the day of reckoning would eventually come and enforcement was non-negotiable. At first, at the onset of the coronavirus, Compliance Officers were initially stunned and overwhelmed by the unexpected paradigm shift in how and where traders work and communicate. However, there is nothing quite like a necessity to spur innovation and change.

Heroically, those tasked with ensuring that operations met compliance guidelines rose to the challenge of COVID, swiftly enacting new policies and identifying solutions to meet the unexpected reliance on personal devices and unapproved Communications modes like WhatsApp, Facebook Messenger and Instagram

SOFTWARE REPLACED HUMAN CAPITAL The trend towards replacing repetitive actions with robotics, software and artificial intelligence (AI) had already begun in other industries but was just beginning in banking. COVID accelerated digital transformation catalyzing a workplace practice from one that was an emerging trend into a best practice within less than six months of a global pandemic. As we’ve entered “the new normal” phase as a society, using software instead of human capital is on-trend.

SOFTWARE PHILOSOPHY Software solutions in RegTech offer greater accuracy and can better pinpoint potential transgressions by interpreting nuance, even in strings of multi-lingual texts punctuated with emojis. Here’s the rub. Despite the effort by Compliance Officers to stabilize their firms’ operations in a COVID crisis, their jobs are now on the chopping block. Experts are forecasting a 25% reduction in compliance staff in London’s banks over the next twelve months.

A CLOSER LOOK AT THE COSTS OF COMPLIANCE In 2013, KPMG reported on the hedge fund industry’s challenges of managing change and uncertainty – and that was in a pre-pandemic era. Increased institutionalization at that time was putting pressure and a greater focus on risk management, due diligence and transparency as it related to operations, transactions and those who brokered them. Compounding the challenges was a shifting regulatory environment which further exacerbated the complexity – and drove up the costs of compliance.

SLIPPING THROUGH THE CRACKS EVERYONE UPHOLDS THE VALUE OF TECHNOLOGY Everyone upholds the value of technology – until they’re negatively impacted by it.

Although advances in RegTech, particularly around the increasingly complex and utilized engagement practice involving e-Comms, may be regarded as an essential evil by those who have been displaced, there is no denying the value that it can bring to financial firms with respect to managing compliance costs and reducing risks. Recognizing that the true cost of compliance is at the level of the people impacted by the advances in RegTech, employers need to consider upskilling, training and other initiatives to lessen the blow.

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