Cost of Compliance Increasing with Regulatory Focus on Culture
Thomson Reuters Accelus published its “Cost of Compliance 2014” survey results, which report that both the cost of compliance professionals and compliance budgets are increasing as the regulatory focus shifts to outcomes-based supervisory systems that ensure a culture of compliance. Two-thirds of those surveyed expect the cost of senior compliance professionals to increase in 2014 as the competition for senior, experienced compliance talent increases. These higher salary costs along with the need for additional personnel will drive more spending on the compliance function. The survey attributes this trend to a “global move to a more judgment style of regulation” that focuses on a firm’s risk management culture. The report asserts, “A skilled, high-quality compliance function is expensive to build, but there is a growing realization that investment in effective risk and control functions and associated infrastructures is worthwhile on many levels, not least of which is the personal accountability of the firm’s senior managers.” The survey also offers data on how compliance officers spend their days, including tracking regulatory developments, board reporting, amending policies and procedures, liaising with other control functions, and all other activities. The survey includes data from over 600 financial service professionals across 71 countries.
OUR TAKE: Senior management must take time to assess a firm’s compliance resources in order to stay competitive with peers and avoid franchise-threatening regulatory problems. As a benchmark, we have recommended that firm’s spend at least 5% of revenue on the compliance function. Another benchmarking study suggests firms spend at least 7% of operating costs on compliance (see blog.cipperman.com/2013/10/20/hedge-fund-firms-spend-at-least-700000-on-compliance.aspx).