According to SteelEye’s annual Compliance Health Check Report, more than half of U.S. firms (55%) plan to invest more in regulatory technology (RegTech) solutions over the next 12 months to cope with the growing compliance pressures in today’s increasingly complex regulatory and operational landscape. The vast majority (98%) of U.S. compliance professionals reported that regulatory costs have increased in the last five years, with 35% stating that such expenditures have doubled.
For the report, SteelEye surveyed 170 senior compliance and risk professionals in the financial services industry on issues including the challenges they face, their investment priorities and the adoption of technology to get a better understanding of the state of the financial services compliance landscape as it stands today.
Regulatory Change and Data Fragmentation Continue to Be a Challenge
Nearly half (47%) of U.S. compliance professionals struggle with challenges related to data management, including overlaying communications and trades to manage market abuse risk, using management information efficiently to demonstrate risk and consolidating and normalizing structured and unstructured data. Roughly one in five (23%) U.S. firms cited managing controls/risks in the business as their biggest compliance challenge.
SteelEye found that in the United States, more than half (52%) of respondents said they now find dealing with regulators easier than it was five years ago. A likely explanation could be the advancement of compliance technology during this time, which has streamlined operations and made them more straightforward. The also survey showed that smaller U.S. firms still fall behind, with 67% saying they now find dealing with regulators more challenging.
When asked if they thought firms were well equipped to handle more stringent regulatory rules over the next five years, encouragingly, most U.S. respondents (95%) believed financial services firms are in a good position. Despite a more complex regulatory landscape, a possible explanation for this widespread optimism is investment in technology.
Compliance Teams are Burdened by Fragmented, Manual Processes
On a global level, administrative and repetitive tasks dominate compliance professionals’ work, pointing to the need for greater automation and digitalization within the sector. Half (50%) of respondents said at least half of compliance staff within their teams perform administrative or repetitive tasks.
The survey demonstrated a clear trend toward centralized compliance management, with 56% of respondents across all regions working within one team that oversees compliance for all branches and regions in which a company operates. In addition, 12% deploy a decentralized model where compliance is managed directly within individual jurisdictions. This is understandably more common for large organizations at 18%. In contrast, 88% of small firms’ compliance management is fully centralized. Centralization of the compliance function can enable businesses to be more strategic and allow for richer learning across multiple jurisdictions. However, this hinges on the business having a strong data foundation.
Surveillance, Regulation and Data Top Priority Lists
When asked about their top two investment priorities for the year ahead, communications surveillance ranked first for U.S. firms, as it was chosen by 50% of respondents, highlighting the challenges presented by digital communication channels like WhatsApp. This is unsurprising given the fact that U.S. regulators have recently become more vigilant about the enforcement of communications rules. Last year’s headline-grabbing $200 million fine for J.P. Morgan by the SEC demonstrated the importance of adequate monitoring of employee communications. Meanwhile, 36% of U.S. firms said trade surveillance was one of their top two investment priorities.
The results showed that at a national level, 55% of firms expect to invest more in RegTech within the next 12 months, with 43% of U.S. firms expecting to invest the same amount.
Firms Are Reaping the Rewards of AI And Machine Learning in Compliance
According to the survey, 55% of firms in the United States said they have fully implemented a degree of artificial intelligence or machine learning in their compliance processes and a further 41% are investing in the technology but are still in the implementation process. This means just 5% are yet to embark on the journey of introducing AI in compliance. In addition, 100% of those who have implemented AI in compliance reported a significant improvement in the quality of their information management.
“Our first Compliance Health Check Report demonstrates the breadth and complexity of challenges facing today’s compliance professionals,” Matt Smith, CEO of SteelEye, said. “Keeping abreast with regulatory change, improving data quality and managing risks and controls within the business are just some of the headaches facing compliance teams.
“The good news is that firms are clearly beginning to recognize the role technology can play in solving complex compliance challenges. In fact, 85% expect to invest the same amount or more in RegTech in the next 12-months.
“Technology and data are key to establishing future-proofed compliance processes and procedures. It is great to see that a large proportion of firms view the enhancement of data quality as a top priority and that most firms are actively investing in technology. By prioritizing how to bring together disparate datasets and make better use of data, firms can more easily address regulatory change and other compliance challenges that will emerge down the line.
“We are hopeful that these investments will enable compliance teams to improve the efficiency of their compliance programs, thereby reducing their reliance on administrative and repetitive tasks. Doing so can enable the compliance function to pivot from reactive investigations and firefighting to a more proactive model for compliance management and risk detection.”