The rising cost of regulatory compliance for financial institutions

Businesses are increasingly worried about regulatory costs that arise every time a new legal framework is introduced. The stakeholders fear that the cost of compliance will cut the growth of businesses and will lead to very restrictive business environments.


Compliance cost applies to all the expenses of a business in order to be in line with the regulatory requirements to which it is submitted. Compliance costs may also include expenses for the creation of the compliance culture in the company and to cover any fines for delays or non-compliance with the legal framework.


According to OECD guidance, compliance costs can be divided into administrative burdens, administration and enforcement costs, and substantive compliance costs. Substantive costs include expenses related to different categories like implementation costs, direct labour costs (i.e wages), equipment costs, materials costs, and external services.

An accurate cost assessment is done in the light of a cost-effective approach, and it contributes to better handle the total costs of a business and manage the business's development. The full identification and assessment of all compliance costs in a business can be a tricky process, depending on the available data.




The cost of compliance has increased after the economic crisis because the authorities tend to be more prone to adopt a more protective approach for the benefit of the financial market and the consumers. Compliance is a never-ending process. GDPR, MiFID II are just some of the latest regulations in Europe that made compliance more exigent and as a result increased its costs.


Another factor that increases charges is the outsourcing of compliance functions or activities. Many businesses do not have enough staff or appropriately qualified professionals in their compliance departments. Hence, they are relying on external expertise, which generates additional costs.


The investment in modern IT tools that will automatize part of the process. In this way, the dedicated professionals will have time to focus on analysing the data and the particular cases, and they will not spend countless hours doing repetitive checks and routine tasks. Many entities to control their costs in the long term have invested in Enterprise Information Management (EIM) or other AML business solutions, such as transaction detection and monitoring systems.
The question that arises is how the future of compliance will look like. Will costs continue to rise and businesses to struggle in order to comply with regulatory requirements? What is certain is that we are in an era of changes that have brought more burdens for compliance professionals.
The need for more regulation and safety in the markets battles with the load of high compliance costs. Costs have a further impact on the growth of the entities as they invest less in creativity and growth because a big part of the budget goes for compliance purposes.
How to reduce compliance costs ?

One of the ways to avoid hiring armies of staff and tackling inefficient performance is the investment in modern IT tools that will automatize part of the process. In this way, the dedicated professionals will have time to focus on analysing the data and the specific cases, and they will not spend countless hours doing repetitive checks and routine tasks. Many entities to control their costs in the long term have invested in Enterprise Information Management (EIM) or other AML business solutions, such as transaction detection and monitoring systems.

EIM refers to the structuring, storage, and processing of all data of a business. EIM reveals insights that can help companies achieve more things and grow. From a compliance perspective, all information in a company is relevant to the business and hence helpful. Companies realise that even unstructured information like emails can be useful. Organising and processing all the data concretely makes the work of compliance professionals easier and diminishes the compliance costs.
How to define a good governance for compliance teams?

Moreover, restructuring the organization of the compliance function in an entity is crucial. Some entities still have teams organised in a way that cannot cope with enhanced compliance needs. An adequate number of professionals, with different seniority levels, is necessary. A Chief Compliance Officer is not enough anymore.
We can assist on your compliance obligations by combining expertise and market experience.

Not by re-inventing the wheel but rolling out tailor made solutions. We will build on modern IT tools and dedicated platforms. Our culture of anticipating, clear communication and strong listening skills will ensure a robust framework for your company.

Piet De Vreese - Pideeco Network Partner
Piet De Vreese Managing Director
1 comments
  • Pideeco country: PK
     
    Thursday 29th of October 2020, 10:45

    Compliance regulatory veries to change of cost day by day because when financial issue increase regulatory so also automatically change to regulatory compliance. i really like your article and very thankful to you.

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