Out-Law News 2 min. read

Compliance spending by UK firms will continue to rise, says survey


Spending by UK firms on regulatory compliance will continue to rise, reflecting increasing board-level concerns over reputational risk and higher fines, according to research by Pinsent Masons, the law firm behind Out-Law.com.

Almost three-quarters, or 73%, of compliance professionals surveyed by the firm predicted spending associated with regulatory requirements at their firms would increase over the next five years, with 86% of those predicting an increase expecting this to be by as much as 20%. However, more than half of those surveyed said that their business did not explicitly allocate part of their budget to spending on compliance systems and processes.

Regulatory law expert Tom Stocker of Pinsent Masons said that the biggest share of firms' compliance-related expenditure tended to go on compliance and legal staff. However, he said that this was "not the only, or necessarily the best" approach.

"The research revealed that greater efficiencies could be achieved through a mix of internal compliance resource and the strategic use of compliance technology and outsourced services," he said.

"I was surprised that about a quarter of respondents said their compliance regime was entirely manually administered, with no electronic, platform-based or other automated solution involved. That is not efficient. It means that clever compliance and legal personnel are spending their time carrying out administrative processes which an IT tool could perform or which could be outsourced, thereby freeing up in-house personnel to be focussed on strategic risk management," he said.

Although more than 50% of survey respondents said that they were looking at a technology-based solution as part of their overall compliance efforts, Stocker said that there was still significant scope for improvement in compliance-related systems and technology. In particular, the research suggested that more sophisticated innovation tended to emerge through collaboration with external agencies, with respondents citing new software solutions and improved IT systems emerging from such collaborations.

"More people does not necessarily equate with better compliance because human error creeps in and problems can be increased by a committee-type approach to decision making," said James Armstrong of compliance specialists Cerico, which is part-owned by Pinsent Masons, in comments made as part of the research report.

"It is also an expensive way of approaching compliance. Large teams are often required to deal with administrative tasks that could be automated or improved through the strategic use of technology. There are good systems out there that help greatly with screening, due diligence, risk scoring, certification and the delivery of training," he said.

Almost 70% of survey respondents said that they expected to see board-level increase in compliance spending over the next 12 months. Of those, 66% said that the potential for reputational damage to the business was the biggest driver of concern at boardroom level, while 53% said that escalating corporate fines were also a factor.

Survey respondents said that the sheer volume of regulation created their biggest compliance challenge, with shifting or unclear guidelines and regulations and compliance with different regulatory regimes when operating across borders also cited as particular areas of concern. Recent and upcoming regulatory initiatives affecting financial firms include the US Dodd-Frank regime, the EU's MiFID II and MiFIR rules and the Basel III international banking standards, while the UK's 2010 Bribery Act and 2015 Modern Slavery Act have created new compliance requirements for businesses more generally, according to the report.

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