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Non Compliance Cost

The current economic crisis has led to much debate in relation to the relative merits of compliance and noncompliance cost of the regulations. The widespread pain caused by the crisis has galvanized regulators around the world to impose far-reaching rules that address and add to the considerably large body of rules already in place. Thus we always talks about compliance cost from the financial institutions but we often ignore what will be mine cost of non-compliance.

We can have different type of non-compliance cost which may impact Financial Institutions (FI). Here are the some of the cost which I can think of:
1. Fines / Penalties:
a. Heavy fines
b. Bans on business activities
2. Legal Costs:
a. Lawsuits and legal representation
b. Discovery and defence
3. Reputational Costs:
a. Lower brand value
b. Client and employee attrition
c. Negative impact on stock price
4. Correctional Costs:
a. Extra time and investment to become compliant
b. Restitution to clients
5. Additional Costs:
a. Increased regulatory scrutiny on businesses / franchises in other      jurisdictions
b. Potential ripple effect on projects needing regulatory approvals

Non-compliance cost are generally indirect cost. Thus influence of these cost are felt over period of time. For example: FI might use manual or not so robust vendor system resulting in saving some cost (short-term perspective) to complained with the regulations for the few months but if they miss any of the deadline of the regulator but the cost of it will be much more significant.

I did talk about Compliance Cost in my last article. Thus it is FI need to decide whether they want to see things from short term view or long term view.

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


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Amit Agrawal

Amit Agrawal


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13 Mar 2010



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