Banks’ compliance heads trapped between regulations and cutbacks
The heads of compliance at financial institutions are stuck between a rock and a hard place, trying to deal with both increased regulatory requirements and the demand to cut costs.
Is tech investment the solution to regulatory problems?
“The compliance officer is really stuck in the middle,” Richard Pike, CEO of Governor Software tells FinTech Futures.
“They’re being told that they must absolutely keep up with regulators and keep up with changes, but that they have got to save money.”
Investment in technology is the only way for things to improve, argues Pike. “The banking industry needs to realise that the only way to get better at this is to invest properly and add more headcount in the short term to get value in the long term.”
Founded in 2015, Governor Software provides solutions to allow firms to track ongoing regulatory standards. It’s Governor: FCA solution was developed in conjunction with the UK regulator. The firm recently completed an agreement with Waymark Tech to supply global firms with its solution.
“I feel like the head of compliance is struggling because they don’t see a way out,” says Pike. “They can’t get the money to invest, and they don’t have the time because they’re busy being burdened by regulation.”
According to a McKinsey report, some banks are spending around $50 million a year on technology to support their compliance function, without seeing much progress in its mature application. The greatest bulk of the spending (around 79%) was dedicated to the upkeep of staff in the compliance department.
Related: 2019’s largest regulatory fines
“Regulation has been continuous since the crash. It’s not going to stop. People said a few years after the crisis, ‘oh, it’s been a deluge of regulation, it’ll slow down and we’ll fix it then,’ but it’s not slowing down.
“People have this problem of wanting to get past the deadlines, get through the bulk of the regulation, and then fix things afterwards. But that won’t happen. You have to bite the bullet and fix the problem.
“The fines will keep coming and they’ll get personal, which is not what anybody wants. The FCA obviously doesn’t go out of its way to fine people.”
Yet the regulators must also take some responsibility for improving back office processes, says Pike. Most have realised in recent times that they need to update their own systems for several reasons.
“One is quality assurance, so that when the data comes in they can very quickly go back to the bank and say, ‘hey, this is wrong.’ Part of the problem is that they often only find an issue six months after the fact, then when they flag it to the bank things have moved on.
“The other major improvement would be in analysing the data. There’s nothing worse for banks than sending data in and having the regulator come back half a year later and say, ‘oh we never really checked out what you sent us but now we have and there’s a problem’.
“Now the regulators are moving forwards, though, and taking those next steps in terms of their backend systems to help them process things.”
Chief Compliance Officers also remained organisationally ‘stuck’ between failure of 3LD, and challenges presented viz ‘competing’ roles of Heads of Risk and General Counsel. All part of the ‘cultural’ issue which has been endemic for over 20 years: fix that and the tech will follow…customers (and regulators) might not unreasonably ask why it’s taking institutions so long…