The cost of compliance continues to be one of the hot issues in financial services.  Year on year spend seems to increase but the question still remains – are the investments delivering a return and improving compliance? The short answer, not yet. The reason? Firms have had to implement many of their regulatory and compliance solutions tactically and the industry has built up a technological debt.  Many solutions are not scalable or sustainable and certainly have not had the time to be built with good design in mind.

Go back to the financial crisis and achieving compliance necessitated throwing bodies at issues to solve problems.  Armies of consultants or temporary staff were hired to rekey compliance data between forms, documents and databases. That's an inherently risky and inefficient process because you’re translating information from one place to another. It's likely to be error prone and it's not scalable. The approach to meeting new compliance requirements has been very tactical but it had to be.

Firms weren’t able to afford the time to build something scalable, innovative and efficient. In today’s environment, build doesn’t always equal best and is unlikely to overcome the technological backlog.  The industry needs smarter investment of effective and innovative solutions to provide the much needed shot in the arm for return on equity (ROE). But how? One idea is that it comes down to interconnectivity between due diligence processes. Institutions have tried to tackle these processes in a somewhat disjointed way because of deadlines against particular requirements or regulatory initiatives.

To the extent that firms can bring those conversations into a single dialogue and have a single conversation with their counterparties, it will facilitate a more effective, efficient and streamlined process for both sides of that equation. Asset managers often struggle with multiple interactions and the reason they have multiple interactions is due to a lack of standardisation on the bank side. If banks can standardise and remove those bilateral interactions, then from an ROE perspective, they are cutting out the repetitive and duplicative costs for not just themselves but their corporate and buy-side clients incurred in order to be ready to transact. The time is now to invest in connected due diligence processes to really achieve a true return on equity.