23 August 2014

amitagrawal

Amit Agrawal - AxiomSL Pte Ltd

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Financial Services Regulation

This network is for financial professionals interested in staying up to date on financial services regulation happening anywhere in the world. CFOs, bankers, fund managers, treasurers welcome.

Hidden Cost of Compliance

04 March 2014  |  1192 views  |  1

 

Financial Crisis have made the regulator active like never before and resulting in more and more upcoming regulations. This upsurge in the volume and velocity of regulations has unintended consequences significantly impacting established bank’s business models and creating challenges for firms in delivering positive client experiences.

 

The estimated cost of complying with regulations for firms around the world is some $1.2 trillion, according to a report published on last week by international law firm Berwin Leighton Paisner. It was published on CNBC website. While regulations has direct impact on how bank operate and how they serve their clients, the level and extend of that impact varies from one regulation to another depending on the country and regulator. Achieving compliance now involves a significant amount of time to track and understand the regulations, realign internal policies and procedures, upgrade internal IT systems etc.  I thought it will be good idea to talk about the cost which bank need to incur for compliance with regulations and generally ignored:

 

  • People Costs
    • Hiring Full Time Employees (FTEs) with legal and regulatory expertise
    • Increasing salaries of compliance experts

 

  • Documentation Costs:
    • Revamping marketing materials and client communications for new regulations
    • Tracking legislation evolution
    • Updating and implementing new policies

 

  • IT and Infrastructure Costs:
    • Automating client on-boarding systems
    • Upgrading existing software and hardware
    • Building strong, scalable operations and infrastructure

 

  • Opportunity Costs:
    • Lower wealth manager productivity on revenue generation activities
    • Lost revenue
    • De-marketing costs

 

We do have positive side of the above costs also. For example Regulatory imperatives can act as the push many firms need to make transformative investments, and technology in particular offers a strong opportunity to turn tactical regulatory efforts into strategic advantages. To improve competency, firms can enhance training programs to not only cover new regulatory requirements, but also strengthen the ability of wealth managers to consistently deliver against the firm’s value proposition. It will also be important for firms to establish and champion clear communication strategies that enable wealth managers to have constructive discussions about regulatory requirements with their clients

Thus when financial institutions decide the third part software to make them compliant with regulations then they need to see something which is beyond regulatory requirements and turn out to be more strategic solution

We will be talking about non-compliance cost in next article

 

Disclosure : I wrote this article myself and it express my own opinion

TagsRisk & regulationPost-trade & ops

Comments: (1)

Abhishek Bisen - RBS Group - Mumbai | 05 March, 2014, 08:47

Cost of compliance is really going up year by year and also seeing the benefits. The cost is also eating up in profits. I wonder if the additional cost is putting pressure on companies to generate more revenue and hence adapt to fraudulent ways of doing so.

Maybe a better way of managing will ease that pressure. I look forward to your next article for more insight.

 

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name

Amit Agrawal

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Vice President

company name

AxiomSL Pte Ltd

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2010

location

Singapore

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Abhishek Bisen