The technology of compliance: OpEx rather than CapEx

As financial markets have become ever more competitive and margins have reduced for all investment firms, there has been an increasing focus on deciding which operational activities are “core” to their business.  Over the years, firms have often taken on a wide range of functions that add to their cost-base but that today may no longer add significantly to their profits.

One area in which they’ve had no choice in taking on extra functions has been compliance.  With a continual flow of new and updated regulations being issued, gradually covering every aspect of a firm’s business, investment in compliance operations has had to increase considerably.  As almost no function in business today can be performed without IT systems to make it work, a daunting aspect of this for compliance teams is how it can push them into becoming an “IT shop”, and also being faced with capital expenditure requirements when they are seen by the firm as an operational cost.  As a result, they can end up trying to get by using simple, general-purpose office tools that they already have to hand rather than using compliance tools that are specifically designed to do the job.

Avoiding CapEx (capital expenditure) is a goal of most investment firms today.  Instead, they are adopting models that depend on OpEx (operational expenditure), where costs and deliverables are more closely linked in order to avoid major “blips” in budgets when more hardware or software has to be bought.  Outsourcing to a compliance service provider is becoming an increasingly attractive approach for compliance teams, where the hardware and software, as well as management of databases and interfaces to the firm’s other systems, is all part of an overall service package. 

That also includes scalability – a vital factor, because regulators are not going to stop issuing new regulations: that’s their business.