July 24, 2018 / 3:03 PM / 23 days ago

COST OF COMPLIANCE 2018: Regulatory change and continuing uncertainty

LONDON/NEW YORK(Thomson Reuters Regulatory Intelligence) - The percentage of firms spending more than 10 hours a week tracking and analysing regulatory developments is falling, according to a survey by Thomson Reuters; the trend is continuing from last year, said the Cost of Compliance Survey. In 2018, just 6 percent spend more than 10 hours a week tracking and analysing regulatory developments, after reaching a peak (24 percent) in 2014.

A clock is seen above an estate agents office in Leicester, central England, August 10, 2010.

The survey is now in its ninth year and generated responses from more than 800 senior compliance practitioners worldwide, representing global systemically important financial institutions (G-SIFIs), banks, insurers, broker-dealers and asset managers. As with all previous years, the report builds on annual surveys of similar respondents and, where relevant, highlights year-on-year and regional trends.

REGULATORY CHANGE AND CONTINUING UNCERTAINTY

FIGURE8:Regulatory Activity Tracked in 2017 (bit.ly/FIGURE-8)

The pace and scope of regulatory change continues unabated. Both the Financial Stability Board and the European Union have signalled that they are to review the implementation and impact of regulatory changes to assess whether the changes are operating as intended and have the desired effect(s). While it is positive that rules and requirements are to be reviewed for effectiveness, it does mean the potential for yet more regulatory change.

During 2017, Thomson Reuters Regulatory Intelligence captured 56,321 regulatory alerts from more than 900 regulatory bodies worldwide, averaging 216 updates a day. This compares with an average of 201 alerts for the previous year, which in part reflects the fact that Thomson Reuters continually expands the range of regulators and rulebooks it monitors.

Continuing the trend from last year’s survey results, the percentage of firms spending more than 10 hours a week tracking and analysing regulatory developments is falling. In 2018, just 6 percent spend more than 10 hours a week tracking and analysing regulatory developments, after reaching a peak (24 percent) in 2014.

FIGURE9:In an average week, how much time does your compliance team spend tracking and analysing regulatory developments? In hours (bit.ly/FIGURE-9)

FIGURE10:Over the next 12 months, I expect the amounts of regulatory information published by regulators and exchanges to be...(bit.ly/FIGURE-10)

The wider use of technology and the use of creative solutions may explain why fewer firms report spending more than 10 hours in an average week on tracking and analysing regulatory developments (6 percent in 2018; 7 percent in 2017; 12 percent in 2016).

The total number of hours compliance teams spend tracking and analysing regulatory developments per week has remained consistent year on year, irrespective of significant regulatory developments. This year’s results show a slight uptick, however, with two-thirds of firms (66 percent) expecting the amount of regulatory information published by regulators and exchanges to be slightly or significantly more in the next 12 months.

From a regional perspective, more than a quarter (28 percent) of firms in Australasia and a quarter of firms in Asia and Continental Europe expect a significant increase in the amount of regulatory information published by regulators and exchanges. Conversely, only 8 percent of firms in the United States expect the amount of regulatory information published to increase significantly in the coming year.

The costs of regulatory arbitrage or inequivalent regulatory regimes were the topic of a review and report by the Organisation for Economic Cooperation and Development and the International Federation of Accountants published in April this year.

FIGURE11:Costs of regulatory divergence for smaller and larger institutions (bit.ly/FIGURE-11)

The recommendations of the regulatory divergence report focus on making more effective regulatory cooperation and harmony a priority for policy makers. The main steps highlighted to seek to curb regulatory divergence include:

- Enhanced international regulatory cooperation.

- An overall increase in rule alignment.

- Improved alignment of regulatory definitions.

- Better communication and awareness among regulatory agencies internationally to avoid duplicating reporting requirements and processes.

- Greater overall clarity in rules and regulation

REGULATORY REPORTING

FIGURE12: In an average week, how much time does your compliance team spend creating and amending reports for the board? In hours (bit.ly/FIGURE-12)

Despite a marginal year-on-year fall since 2016 (29 percent), almost a quarter (24 percent) of compliance teams are still spending less than an hour a week creating and amending reports for the board. There are some regional variances, with 43 percent of firms in the United States and a third of firms in Canada spending less than an hour a week, compared with just 16 percent of firms in Asia.

All forms of internal reporting need care and attention, and even more so in the current regulatory climate and given the focus on culture and conduct risk, where context is crucial. Board reports form part of the corporate governance of a firm and are routinely reviewed by supervisors as well as the boards themselves. The qualitative nature of culture and conduct risk means that compliance reporting, along with policies, procedures and monitoring, will need to stay under constant consideration as the firm’s risk-based approach continues to evolve.

FIGURE13: In an average week, how much time does your compliance team spend amending policies and procedures to reflect the latest regulatory rules, in hours (bit.ly/FIGURE-13)

To download the full report, click: (here).

(Stacey English is head of regulatory intelligence and Susannah Hammond is senior intelligence expert at Thomson Reuters Regulatory Intelligence.)

This article was produced by Thomson Reuters Regulatory Intelligence and initially posted on June 26. Regulatory Intelligence provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Regulatory Intelligence compliance news on Twitter: @thomsonreuters

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