Upload
corruptioncurrents
View
222
Download
0
Embed Size (px)
Citation preview
8/2/2019 Cost of Compliance
http://slidepdf.com/reader/full/cost-of-compliance 1/8
COST OF COMPLIANCE
SURVEY 2012Stacey English and Susannah Hammond
REUTERS/ TORU HANAI
8/2/2019 Cost of Compliance
http://slidepdf.com/reader/full/cost-of-compliance 2/8
Thomson Reuters GRC surveyed more than 500 compliance
practitioners rom nancial services rms around the world between
November 2011 and January 2012 to canvass their views on the costs
o compliance and their greatest challenges or the year ahead. The
results refect the continued ocus on regulation and compliance in
the atermath o the global nancial crisis and the ever-increasing
complexity and volume o requirements. Similar research was
undertaken in prior years and comparable results are included where
applicable.
The responses received covered Europe, the Americas, Australasia, Asia,
Arica 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 rom
those whose compliance departments comprised just one person to
global conglomerates with much greater resources.
It is clear rom both the number o respondents and the rankness o the
detailed comments received that compliance ocers rom all regulated
rms are, more than ever, under severe pressure. It is evident rom the
responses that many compliance ocers have now reached saturation
point.
Firms’ executive management and regulators alike need to understand
and address the increasing strain on compliance. A vital actor in easing
the pressure on the compliance unction is the provision o adequate
skilled resources to meet the growing demands and challenges. The
oten under-valued task o compliance can be made substantially
easier where senior managers visibly and vocally demonstrate
support or the compliance unction and promote a compliant culture.
Similarly regulators around the world must start to take account o the
relentless pressure on compliance unctions to assimilate and drive the
implementation o the ever-increasing burden o regulatory change, i
that change is to be eective.
“A Chie Compliance Ocer who
does not have the ull support and
engagement o senior management
and the board is not going to be
eective.”
Carlo V. di Florio, Director, Ofce o Compliance Inspections and
Examinations, U.S. Securities and Exchange Commission, January 2012.
The majority o the respondents had ewer than ve people in their
team to manage the ever-growing compliance obligations or their
organisation. The survey asked about the proportion o time spent on
key 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 and
activities are also actored into the working week – activities such as
dealing with queries rom the business, undertaking investigations or
past business reviews, and managing regulatory visits and relationships
– it is clear why compliance teams are so stretched. On average, halo the typical compliance ocer’s working week is taken up with the
bare non-optional basics. This result again leads to the conclusion that
many compliance ocers are reaching breaking point.
Typical week o a compliance ocer
TRACKING, ANALYSING AND INFLUENCING REGULATORY CHANGE
Tracking potential and actual change is essential to ensure that the rm
is aware o and prepared to meet regulatory requirements. Compliance
ocers around the world are under no illusions that 2012 will bring
even more regulatory inormation rom both regulators and exchanges.
Almost hal o respondents thought that the level o regulatory
inormation would be signicantly higher over the next year.
Overall, 84 percent o compliance ocers surveyed believed the fow o
regulatory inormation would increase in 2012. These expectations have
steadily risen over the past ew years and are supported by nearly a 16
percent increase in the number o regulatory alerts tracked by Thomson
Reuters GRC year on year.
Over the next 12 months, I expect the amount o regulatory
inormation published by regulators and exchanges to be:
SIGNIFICANTLY LESS THAN TODAY
SLIGHTLY LESS THAN TODAY
THE SAME AS TODAY
1%1%
14%
39%
45%
SLIGHTLY MORE THAN TODAY
SIGNIFICANTLY MORE
THAN TODAY
2 COST OF COMPLIANCE SURVEY 2012
TRACKING AND ANALYSING
REGULATORY DEVELOPMENTS
BOARD REPORTING
AMENDING POLICIES
AND PROCEDURES
LIAISON WITH CONTROL
FUNCTIONS
OTHER COMPLIANCE TASKS INCLUDING:
COMPLIANCE RISK ASSESSMENT
REGULATORY LIAISON AND EXAMINATION
MONITORING AND TESTING
INVESTIGATIONS
TRAINING
PROVIDING ADVICE TO THE BUSINESS
RESPONDING TO PROPOSED LEGISLATION
REGULATORY REPORTING
8/2/2019 Cost of Compliance
http://slidepdf.com/reader/full/cost-of-compliance 3/8
The change in 2012 will not just be in terms o volume and speed o
developments but most crucially in the undamental nature o many
o the expected publications and announcements that will aect both
regulators and rms. For regulators the biggest changes include the
splitting apart o the UK Financial Services Authority, an increase in the
direct regulatory power o the European Supervisory Authorities and the
expansion o several new and existing regulatory agencies in the U.S. as
a result o the Dodd-Frank Act. For rms, undamental changes range
rom the proposed shit o the regulatory perimeter to include shadow
banking to the orcible separation o wholesale and retail business or
many banks and the increasingly global reach o regulations such as the
UK Bribery Act and the U.S. Foreign Account Tax Compliance Act.
Compliance unctions devote extensive skilled resources to track and
assess the impact o regulatory change. This continues to be an onerous
task. More than a third o respondents spend more than an entire
working day each week considering the changes and one th spend
in excess o 10 hours during an average week. This level o activity is
consistent with ndings or the previous year. Despite the increasing
volume o regulatory change, compliance teams do not appear to
have the capacity to devote the extra resources needed to adequately
consider these additional developments. While there are slight
geographic variations in the results it is clear that the sheer volume oongoing regulatory change is a global issue. The ndings show that the
issue is particularly acute in Asia, where a third o compliance ocers
are devoting more than 10 hours a week to tracking and analysing
regulatory change. This is ollowed closely by the UK where 25 percent
o rms devote in excess o 10 hours to this activity.
In an average week, how much time does your compliance team
spend tracking and analysing regulatory developments? (in hours)
In an average week, compliance teams spending more than 10 hours
tracking and analysing regulatory developments (by region)
Compliance ocers not only need to track and analyse actual and
proposed regulatory change but must also stay up to date with where
that change is coming rom and how best to infuence proposals on
behal o their rm. This, again, creates urther demands on resources.
A third o respondents anticipate that there will be a greater need
to devote resources to infuencing and lobbying the shape o utureregulation this year. Two thirds o respondents, however, anticipate
they will not have the capacity to infuence regulatory developments –
another indicator that compliance unctions have reached saturation
point.
“It is vitally important that the industry
continues to invest time to engage. Well
articulated pan-European industry input is
careully listened to and can infuence policy-
making. It is vital that the sector organises
itsel 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 new
rules, the compliance unction is responsible or ensuring that the
necessary updates are made to all relevant internal policies and
procedures. The results o the survey show that 40 percent o all
compliance unctions spend at least hal a working day every week
on the burdensome, but important, task o updating and amending
policies and procedures. This is to refect the latest regulatory
requirements as well as new business activities and actions arising rom
monitoring work and reviews. These policy and procedural changes
generate a stream o other necessary activities, including the associated
communication and training, the inclusion in all relevant monitoring
plans, and the need to maintain an audit trail o changes. Consistent
with previous years, the resources devoted to the ongoing maintenance
o up-to-date policies and procedures remains high across the world.
There are some regional variations. The results show that Asian rms in
particular are devoting relatively more resources to keeping policies and
procedures up to date, with nearly a third spending in excess o a ull
working day every week.
0%
5%
10%
15%
20%
25%
30%
35%
UK US ASIA MIDDLE
EAST
REST OF
WORLD
32%
27%
4%
15%
22%
LESS THAN 1
1 TO 3
4 TO 7
7 TO 10
MORE THAN 10
accelus.thomsonreuters.com 3
8/2/2019 Cost of Compliance
http://slidepdf.com/reader/full/cost-of-compliance 4/8
8/2/2019 Cost of Compliance
http://slidepdf.com/reader/full/cost-of-compliance 5/8
In an average week, how much time does your compliance team
spend consulting with the legal, internal audit and risk unctions on
compliance issues? (in hours)
The need or rms to be aware o emerging risks and to use limited
resources as eciently and eectively as possible should encourage
compliance unctions towards close and continuous liaison with
colleagues in the wider risk-management ramework. Regulators
expect regulatory risks to shape internal audit’s monitoring plans, so it
is important that there is a consistent and joined up approach within the
rm. For those rms where the relationship between compliance and
internal audit continues to be limited, urgent reassessment is required.
It could be considered a sign o senior management’s ailure to engage
with risk and compliance i the control unctions are not expected, nor
indeed required, to work in close alignment.
“The SEC will ocus most intently on rmswhere we sense that senior management
and the board are not setting the appropriate
tone and are ailing to support key risk and
control unctions with adequate resources,
independence, standing and authority.”
Carlo V. di Florio, Director, Ofce o Compliance Inspections and
Examinations, U.S. Securities and Exchange Commission, January 2012.
LIAISON WITH REGULATORSIt is unsurprising, given the strength o opinion that the volume o
regulatory change will increase in the next year, that compliance ocers
and their rms expect to spend more time liaising and communicating
with regulators. Predominantly this involves the resources at the most
senior levels o compliance. Overall, nearly 70 percent o respondents
oresee an increase, and more than a quarter expect the amount o
time spent interacting with regulators and exchanges to increase
signicantly in 2012. These views are driven largely by anticipation o
more onerous regulatory and reporting requirements, closely ollowed
by recognition o the increased intensity o supervision.
Compliance ocers’ expectations or the year ahead are remarkably
similar to their expectations or 2011 and, having seen a steady increase
in expectations since 2008, this reinorces the reality o intensiyingsupervision and interaction. O those practitioners that expected a
signicant increase in the levels o interaction, over hal attributed it
to the need to lobby and infuence uture regulation and to liaise with
multiple global regulators.
This year’s survey shows regional dierences in expectations. Asian
rms anticipate the greatest increase in interaction with their regulators,
with 89 percent o compliance ocers expecting a rise. Notably nearly
hal o rms in the Middle East expect this regulatory interaction to
increase signicantly this year.
The increase in the complexities o dealing with regulators is no
surprise. Regulators themselves are under greater pressure to
implement national and international changes to regulation and deliver
better regulation while acing their own internal organisation and
stang challenges. In the UK, or example, the regulator has to deal
with both national supervision and the implementation o EU policy
while undergoing its own internal reorganisation.
Over the next 12 months, I expect the time spent liaising and
communicating with regulators and exchanges to be:
MANAGING REGULATORY RISK
There has been no relie rom the pressure o managing regulatory risk.
Respondents’ expectations remain consistently high and in line with
expectations or the previous year. Overall, 82 percent o compliance
ocers surveyed are expecting increased ocus on regulatory risks in
2012. Hal o these expect signicantly more ocus, particularly those in
Asia and the Middle East.
Compliance ocers have attributed the anticipated heightened ocus
on risk to the scrutiny and criticism o the previous global regulatory
approach which was held, at least in part, responsible or the depth othe recent nancial crisis.
Over the next 12 months, I expect the regulatory ocus on managing
regulatory risk to be:
LESS THAN 1
1 TO 3
4 TO 7
7 TO 10
MORE THAN 10
TIME SPENT LEGAL INTERNAL AUDIT RISK
30% 52% 30%
37% 28% 36%
18% 12% 19%
7% 4% 7%
8% 4% 8%
41%
28%
28%
1%2%
SIGNIFICANTLY LESS THAN TODAY
SLIGHTLY LESS THAN TODAY
THE SAME AS TODAY
SLIGHTLY MORE THAN TODAY
SIGNIFICANTLY MORE THAN
TODAY
44%
38%
16%
1%1%
SIGNIFICANTLY LESS THAN TODAY
SLIGHTLY LESS THAN TODAY
THE SAME AS TODAY
SLIGHTLY MORE THAN TODAY
SIGNIFICANTLY MORE THAN
TODAY
accelus.thomsonreuters.com 5
8/2/2019 Cost of Compliance
http://slidepdf.com/reader/full/cost-of-compliance 6/8
FINANCIAL COSTS AND BUDGET
Regulators will continue to expect sucient resources and expertise
to be given to the compliance unction. The survey identied that, in
practice, the vast majority (93 percent) o respondents expect their
total compliance team budget to at least remain the same as or the
previous year or to increase. It is a matter o potential concern that
only 11 percent are expecting a signicant increase in budget. This is
despite the acknowledged rise in demand or experienced compliance
resources. Firms and regulators will continue to compete or limited
compliance expertise in the marketplace and it remains to be seen
whether or not these budget levels are sucient to cover the expected
signicant increase in the scope and volume o regulatory change.
Over the next 12 months, I expect the total compliance team budget
to be:
Over the next 12 months, I expect the cost o senior compliance sta
to be:
“… this new approach will require greater
resources and expertise and thus costs more
than the old reactive model which existed
prior to the crisis”
Hector Sants, Chie Executive, UK FSA, February 2012.
The majority o rms expect the cost o compliance resources to
increase in 2012. Compliance ocers in Asia and the Middle East expect
to see the most signicant rises in these costs and, correspondingly,also expect the biggest increases in their compliance budgets. It may
be a side eect o the nancial crisis that rms in these regions that
aced relatively less troubled times are now able and willing to devote
more resources to compliance. It will be a matter o continuing concern
or any rm i it is unable to allocate resources and increase its costs
suciently to attract and retain the required additional compliance
expertise or the ollowing year.
“Adequate resources also include the
allocation o an appropriate budget or the
compliance unction. The compliance ocer
should be consulted beore the budget isdetermined. All decisions or signicant
cuts in the budget should be documented in
writing and contain detailed explanations”.
ESMA consultation on certain aspects o the MiFID compliance unction
requirements December 2011
THE CHALLENGES COMPLIANCE OFFICERS ANTICIPATE IN 2012
Compliance ocers were asked about the greatest challenges
they ace in the coming year. The sheer range and volume o issues
highlighted demonstrates the everyday challenge that compliance
teams ace in managing and responding to competing priorities and
stakeholders. The issues most oten highlighted by rms or 2012 were,
overwhelmingly, keeping on top o regulatory change and the perennial
issue o resources. Specic regulatory challenges highlighted include:
•Foreign Account Tax Compliance Act
•Markets in Financial Instruments Regulation and Directive II
•Anti-money laundering
•UK Retail Distribution Review
•Dodd-Frank Wall Street Reorm and Consumer Protection Act
•Basel III
•Sanctions
•Solvency II
•Data protection
•Undertakings or Collective Investments in Transerable Securities IV
Directive
•European Market Inrastructure Regulation
•Remuneration
•Conficts o interest
•Suitability
•Alternative Investment Fund Managers Directive
•Bribery and corruption
28%
5%
11%
2%
54%
SIGNIFICANTLY LESS THAN TODAY
SLIGHTLY LESS THAN TODAY
THE SAME AS TODAY
SLIGHTLY MORE THAN TODAY
SIGNIFICANTLY MORE THAN
TODAY
27%
1%
17%
2%
53%
SIGNIFICANTLY LESS THAN TODAY
SLIGHTLY LESS THAN TODAY
THE SAME AS TODAY
SLIGHTLY MORE THAN TODAY
SIGNIFICANTLY MORE THAN
TODAY
6 COST OF COMPLIANCE SURVEY 2012
8/2/2019 Cost of Compliance
http://slidepdf.com/reader/full/cost-of-compliance 7/8
A DECADE OF CHANGE TO COME
There is no doubting the depth and breadth o the challenge acing
compliance ocers and their rms in 2012. The sheer sweep o
regulatory change is reshaping the world o nancial services with
potentially a decade o change still to come. Senior managers should be
under no illusions as to the extra dimension these challenges bring to
the successul management o regulatory risk. Good compliance ocers
are an increasingly valuable commodity and i their current rm does
not take seriously the need to devote sucient resources to compliance
then it is all too likely that they will move on to another rm or regulator
with more understanding o the importance o compliance.
All nancial services rms are under pressure and there are many
unctions which contribute to the ongoing success o a rm. But, as
has been proven time and again, a rm will only thrive in the medium-
and long-term i it builds a strong compliance culture and invests in
compliance. Firms whose compliance ocer has reached saturation
point ace a rat o unpleasant consequences. These range rom a lack
o capacity to track and implement regulatory change to the inability
to infuence developments, with a potentially detrimental eect on
business plans.
They also ace the threat o regulatory enorcement action arising
rom senior managers’ ailure to engage with compliance. Another
consequence could easily be that not only does the compliance ocer
leave but that other, good quality, compliance ocers are unwilling to
join.
Regulators have a major part to play in helping to achieve the
implementation o eective regulatory change. To ease the burden on
compliance ocers, regulators themselves must ensure that they are
coordinated and coherent in agreeing international regulatory policy
and its implementation.
Firms have to make critical decisions about where to allocate scarce
resources. Risk-aware rms will understand the need to invest in both
people and technology to allow them to get the most rom their in-
house compliance expertise. An eective compliance risk assessment
which takes account o trends, changing regulatory expectations and
benchmarks regulatory approach with peers is vital to help rms ocus
their limited compliance resources and achieve more with less.
Sanctions
MiFID II
UK regulator changes
Tracking regulatory change
Implementation of regulatory change
Resources
Basel
Dodd Frank
RDR
Compliance riskMore intensive supervision
FATCA
Corporate governance
AML
Extraterritoriality
MAS
HFT
accelus.thomsonreuters.com 7
COMPLIANCE CHALLENGES IN 2012
8/2/2019 Cost of Compliance
http://slidepdf.com/reader/full/cost-of-compliance 8/8© 2012 Th R 03 12
Thomson Reuters Governance, Risk & Compliance (GRC) business unit provides comprehensivesolutions that connect our customers’ business to the ever-changing regulatory environment.
GRC serves audit, compliance, fnance, legal, and risk proessionals in fnancial services, law frms,
insurance, and other industries impacted by regulatory change.
The Accelus suite o products provides powerul tools and inormation that enable proactive
insights, dynamic connections, and inormed choices that drive overall business perormance.
Accelus is the combination o the market-leading solutions provided by the heritage businesses
o Complinet, IntegraScreen, Northland Solutions, Oden®, Paisley®, West’s Capitol Watch®,
Westlaw® Business, Westlaw Compliance Advisor® and World-Check®.
THOMSON REUTERS ACCELUS
For more information, visit accelus.thomsonreuters.com
ACCELUS COMPLIANCE MANAGERAccelus Compliance Manager is a connected solution that provides purpose-built
unctionality that enables users to join up the ever changing regulatory inormation and
connect it to their internal compliance business process workfow. As a comprehensive
solution, the system is designed to serve as a regulatory intelligence portal, enable users
to track and communicate regulatory change to organisational risks, document associated
policies and controls and manage business processes with connecting workfow. Through a
shared taxonomy ocused on regulations and risks, the solution enables a common language
o compliance, shared methodology, and increased visibility, transparency and insight.