The True Cost of Compliance - Jobs at Shield
Damned if you do, damned if you don’t. 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.
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.
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.
The option of non-compliance isn’t feasible. The delta is 2.71 times greater costs for those organizations that do not meet regulatory compliance requirements according to a 2019 report by Ponemon and Globalscape. On average, when financial institutions of all sizes are considered, the annual cost of compliance is ~$5.5 million for those who comply and ~$15 million for those who do not. Between the years 2008-2018, banks paid more than $321 billion on enforcement actions including settlements and related fines.
Slipping through the cracks
Everyone upholds the value of technology – until they’re negatively impacted by it. Insofar as we know, members of society have victimized others since time began. There is always someone, somewhere, who has nefarious intentions and figures out how to game the system to his/her/their advantage. 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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