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The Cost of Non-Compliance for Financial Services

Kristen Deyo
Digital Transformation
9/7/2017

“Skyrocketing costs mean that firms have had to decide which regulations to prioritize, meaning that some will miss the already extended MiFID II deadline. More guidance is needed from the regulator about how firms should allocate their time and money when complying with regulation, especially as the cost of Brexit, changes in US policy and cyber crime continue to emerge.” - Julien Korek, Global Head of Compliance & Regulatory Consulting at Duff & Phelps

In an era of increased regulatory changes, financial services organizations are reassessing how to effectively allocate their resources to comply with imminent regulatory changes like MiFID II and others on the horizon. While the most obvious consequence of non-compliance is severe monetary penalties and fines, non-compliance can pose deep operational challenges for financial services organizations who struggle to comply. So just how much can non-compliance cost?

The Financial Impact of Non-Compliance ($)

In a survey conducted by Duff and Phelps, it was estimated that 89% of firms believe that regulations are not only increasing costs for their organizations, but that compliance spend could more than double within the next five years. Here are some compelling stats to put this into perspective:

  • Banks paid an excess of $42 billion in fees for non-compliance infractions in 2016
  • The estimated cost for MiFID II compliance set to launch in January 2018 is $800 billion.
  • Since the financial crisis of 2008, banks have paid over $204 billion in compliance related fines and infractions.
  • One New York bank was ordered to pay fines of $185M for failing to comply with rules intended to protect client assets in 2015.

What’s even more startling is 73% of risk and compliance managers admit they’re not aware of non-compliance penalties of up to $5 million even though it’s their job.

The Operational Challenges of Non-Compliance

There are other challenges that plague financial services organizations beyond the financial implications of non-compliance. Many organizations struggle with setting up the resources and technology infrastructure needed to ensure compliance needs are met. In fact, it is estimated that 29% of firms have neither in place with respect to compliance.

Resource Challenges

One of the most fundamental challenges financial services face is the continued scarcity of skilled compliance personnel, forcing organizations to do more with less. Of those in compliance related roles, 25% spend an average of an entire day a week tracking and analyzing regulatory change. The demand for these skilled resources is high, which comes at a price. According to Reuters, nearly 70% of firms expect overall senior staff to cost more, highlighting that there is a greater need for additional senior staff to manage the volume of regulatory requirements.

Technology Challenges

Technology poses another big challenge for firms as increased regulatory change drives the adoption of new technology to assist in managing many aspects of organization-wide compliance. In fact, Managing data and content as a strategic asset is important when it comes to compliance. Robust, compliance-driven platforms, with governance capabilities necessary to ensure compliance needs are met, are becoming essential in this new digital era.

Conclusion

As compliance related costs and risks continue to rise, financial services organizations need to prioritize how to best allocate their resources in order to remain compliant and mitigate risk. And yet, in many cases, firms have not adequately taken advantage of the tools and technologies that can help them effectively leverage their investment. To avoid falling behind, compliance functions, along with the organization at large, need to develop and execute a clear strategy for the adoption of technology and solutions, as well as up skill internal resources/talent.

At Stantive, we’ve built the only Digital Experience Platform (DXP) native to Salesforce and have been helping financial services leaders like yours effectively manage data and content as a strategic asset with respect to compliance. Our publishing workflows and approvals, versioning and robust governance capabilities ensure your content across all digital channels is compliant and meets your global regulatory requirements. Want to learn more? Connect with our team on social, check our “State of Compliance” infographic below or contact us directly at marketing@stantive.com.

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Sources:
https://www.compliance-wise.com/costs-of-non-compliance-part-3/
https://risk.thomsonreuters.com/content/dam/openweb/documents/pdf/risk/report/cost-compliance-2016.pdf
http://www.brinknews.com/asia/how-to-reduce-cost-of-compliance-for-financial-services-institutions/