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With the never-ending stream of regulations and obligations imposed on financial institutions, it is no wonder that departments across the industry struggle to comply and race against the clock to meet their deadlines. But is there a way to reduce this burden?
Updated AML and KYC requirements, ESG disclosures, crypto-asset obligations, cybersecurity overhauls, and more, it seems that the list of compliance demands is ever-expanding.
As a result of these increasingly complex regulatory frameworks, financial institutions must continually adapt their processes in a landscape of missing resources, increasing costs, loss of motivation, and potential incurrence in fines.
Known as compliance burden, this challenge doesn’t have to be overwhelming. Let’s explore ways to reduce this strain and streamline compliance efforts.
What is compliance burden?
Compliance burden can be defined as the extensive effort, time, and resources required by financial institutions to adhere to a myriad of regulatory requirements and obligations imposed by governing bodies.
This burden encompasses not only the direct costs associated with compliance activities, but also the indirect costs such as the diversion of staff from other critical tasks, the need for ongoing training and education, and the implementation of sophisticated compliance management systems. The cumulative effect can strain financial institutions, leading to operational inefficiencies.
In a report by Thomson Reuters published in 2023, 59% of compliance officers surveyed in the EU and U.K. believed that there would be a slight increase in regulatory information being published in the next 12 months. In the U.S., the number was 43%.
What should the compliance department do to reduce compliance burden?
The compliance department has a fundamental role in reducing compliance burden. By implementing effective strategies, the department can ensure that regulatory implementation processes are not heavy on the entire organization. These include:
1
Regulatory Watch: the creation of a comprehensive and clear Regulatory Watch allows the compliance department to detect in time new regulations, giving financial institutions the time needed to implement any new processes without last minute rushes. Be sure to include in your Regulatory Watch a breakdown of the regulation, the stakeholders that should be involved, clear deadlines, and next steps to take.
2
Development of a compliance roadmap: from the information found in the Regulatory Watch, create a clear roadmap on the implementation of the new process. The clearer everyone’s duties, the less attrition and time-wasting there is. Sit down with the relevant stakeholders to map out what everyone’s duties are and determine deadlines.
3
Fostering of interdepartmental collaboration: It is essential that interdepartmental collaboration is encouraged and facilitated to ensure a cohesive approach to compliance. This involves regular communication, shared goals, and integrated processes across departments to streamline compliance efforts and address regulatory requirements more effectively. By working together, departments can share insights, resources, and best practices, ultimately reducing redundancy and enhancing overall compliance efficiency.
4
Clear policies & procedures: drafting clear policies and procedures allows the employees of the company to understand how they should carry out the new processes. The clearer, the better.
5
Improvement of communication: communicate early (when the roadmap is outlined) to all employees of the new regulation and upcoming processes so to avoid any surprises. This can be done with an internal communication such as an email.
6
Training & workshops: shortly before the new process launches, organize training sessions of workshops for the employees that are involved in the process. Make the training sessions personalized to the various departments and avoid generic training.
7
Enhancement of internal controls: this includes regularly reviewing and updating control mechanisms to align with current regulations and industry best practices. Implementing robust checks and balances, conducting periodic internal audits, including enterprise-wide risk assessments (EWRA), and establishing clear accountability can help detect and prevent compliance breaches early.
How to reduce compliance burden for employees?
Employees of different departments outside of compliance are often hit the hardest from compliance burden. For example, the business department needing to implement new KYC rules must not only understand these regulations but also integrate them into their existing processes. This can lead to increased workloads, requiring additional time and effort to verify customer identities and maintain accurate records.
An efficient way to avoid such pressures is to embed any new controls directly into their workflow. This can be done by incorporating such controls as close as possible to the decision-making points through developing new tools or modifying existing ones and describing the process clearly in a procedure.
Whatever new compliance control is implemented, it should be designed to integrate seamlessly with the current operations, ensuring minimal disruption.
Providing sufficient resources and support during the transition period can also mitigate the added workload, ensuring that employees can maintain productivity while complying with new regulations.
According to Gartner, a U.S. technological research and consulting firm, 32% of employees surveyed could not find relevant information after they had missed a compliance obligation while 20% didn’t know information was even needed.
How can technology help reduce compliance burden?
Technology can be a great asset in reducing compliance burden, but at the same time, it can have the opposite effect. New compliance controls often mean increased complexity, potential integration challenges, and the need for ongoing updates and maintenance.
Having to develop new tools or modify existing ones requires time, resources, and knowledge that may not be readily available in a company. However, there are ways to lighten this burden.
The first is to improve data quality, such as having complete customer data. By ensuring that data is accurate, consistent, and easily accessible, companies can streamline the creation or modification of tools. Implementing robust data governance frameworks can help maintain high data standards and facilitate smoother integration of new controls.
The second approach is to leverage automation wherever possible. While this may require a bit more work at the beginning, especially if it is a new tool and requires an investment from the IT side, the payoff can help reduce any burden that may come with the new control.
Automated systems can efficiently handle routine compliance tasks, such as monitoring transactions, generating reports, and flagging potential issues in real-time. This not only improves accuracy but also frees up human resources to focus on more strategic activities.
Moreover, automation can provide a scalable solution that adapts to the growing needs of the organization. As regulatory requirements evolve and business operations expand, automated systems can be updated with minimal disruption, ensuring continuous compliance without the need for significant additional resources.
How can external expertise help alleviate compliance burden?
External consultants can help organizations alleviate compliance burden in numerous ways. Their specialized knowledge of industry regulations and best practices ensures that an organization stays updated with the latest compliance requirements.
They can also provide an objective assessment of the current compliance processes and identify areas for improvement, helping to streamline operations and reduce inefficiencies.
External experts can assist with the implementation of new compliance controls, offering guidance on integrating these controls into existing workflows and ensuring they are tailored to the organization's specific needs. They often have access to advanced compliance tools and technologies and can recommend and help implement these solutions, leveraging automation to reduce the manual workload associated with compliance tasks.
Consultants can also provide targeted training programs for employees, ensuring that the workforce is knowledgeable about compliance requirements and proficient in using new tools and systems.
By outsourcing the implementation of new compliance controls, organizations can save time and internal resources, effectively reducing compliance burden and enhancing operational efficiency.
Compliance burden: a complex challenge
While it may seem that regulations are meant to hinder certain processes, the opposite is true. Regulations are introduced to safeguard stakeholders, stabilize businesses and markets, define responsibilities, enhance transparency, and deter unethical practices.
This creates a set of new controls and processes that organizations will have to implement, creating burden on its business and employees. It is impossible to escape from this challenge. However, it can be reduced through a series of practices that compliance communication, automating routine tasks, enhancing staff training, and leveraging external expertise to ensure efficient and effective compliance management.
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ComplianceWed 08 May 2019
Experts in risk management and regulatory compliance
Pideeco is a consultancy firm providing legal services, business solutions, operational assistance and educational material for professionals in the financial industry.
We are based in Brussels and we specialize in regulatory risk compliance services covering the Eurozone.
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