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The Compliance Tsunami


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This research seeks to explore the ways in which wealth management firms have been shaped by the ‘compliance revolution’ – a period of unprecedented regulatory change in the financial services industry that began in 2011. To research the subject, ComPeer conducted 12 interviews with executive or senior managers at firms that are widely regarded as thought leaders in the wealth management industry. These are our findings.

Published in: Economy & Finance
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The Compliance Tsunami

  1. 1. The Compliance Tsunami Tuesday, 4th March 2014
  2. 2. Research Partner Contents A Tsunami – Really ? Industry Background Research Participants Methodology Findings Conclusions Questions
  3. 3. Research Partner Industry Background and Firms Interviewed • Record years for the wealth management industry! • However, costs are increasing and some firms are having particular difficulty • £60 billion of investment assets, 3200 staff • CEOs and Heads of Compliance
  4. 4. Research Partner Methodology • Comprehensive, 60 minute interviews • Covering 5 main topics • Governance • Strategy and Daily Operations • Compliance Costs • The Front Office • The IT Department and Compliance Technology
  5. 5. Research Partner Findings ‘How would you rate the pace and volume of regulatory changes across 2012 and 2013?’ “All the regulation is acceptable in my view. There‟s too much whinging going on.” 58% 33% 8% 0% 0% 0% 10% 20% 30% 40% 50% 60% 70% Very high High Normal Low Very low Percentageofparticipants
  6. 6. Research Partner ‘How would you rate the task of dealing with the regulatory workload during 2012 and 2013?’ 33% 33% 25% 8% 0% 0% 5% 10% 15% 20% 25% 30% 35% Very difficult Difficult About average Easy Very easy Percentageofparticipants “External help almost provides us with reassurance, b ut there has to be collaboration so we can compare notes.”
  7. 7. Research Partner ‘Have there been any material changes since the FSA split into the FCA and PRA?’ “They‟re trying to understand our business model. The FSA never did that.” 20% 80% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% No Yes - increased engagement and focus Percentageofparticipants
  8. 8. Research Partner ‘What difference, if any, have regulations introduced in the previous two years had on the way your business operates?’ Suitability Scalability
  9. 9. Research Partner ‘Do you have a defined compliance strategy in place and if so, can you describe it and its implementation?’ said, ‘no’ “…we don‟t have a strategy that is documented.” “Well, I suppose the strategy is to remain compliant at all times.”
  10. 10. Research Partner ‘For the compliance projects that take up most of your time, are you able to allocate what percentage of the work you would consider to be good business practice?’ 78% 83% 35% 45% 55% 65% 75% 85% RDR Suitability Averagepercentoftotalworkcitedas goodbusinesspractice “The FCA‟s mantra is, „if it‟s not documented, i t doesn‟t exist.‟”
  11. 11. Research Partner ‘What are the main factors driving your compliance department costs?’ 17% 58% 25% 0% 10% 20% 30% 40% 50% 60% 70% Business Growth The level of regulation Remuneration Percentageofparticipants “Regulation! The sheer weight of it hitting our sector is massive.”
  12. 12. Research Partner ‘How would you rate the level of your compliance department costs?’ 33% 33% 25% 8% 0% 0% 5% 10% 15% 20% 25% 30% 35% Very difficult Difficult About average Easy Very easy 8% 0% 75% 17% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% Much too high High Acceptable Too low Much too low Percentageofparticipants ‘How would you rate the task of dealing with the regulatory workload during 2012 and 2013?’
  13. 13. Research Partner • 1.8 front office professionals • Generating £500,000 revenue • Opportunity cost = £900,000 ‘To what extent do you feel the front office has been impacted by the regulatory environment?
  14. 14. Research Partner ‘How easy is it for your IT department to keep pace with regulations introduced over the past two years (both in terms of project and business-as-usual work)?’ found it ‘difficult’ or ‘challenging’ “Giving us six months notice is unacceptable – I.T. is a finite resource and there‟s only so much we can ask them to do.”
  15. 15. Research Partner ‘Do you use specialist compliance software to help with the management of compliance and if so, what advantages/disadvantages does it bring?’ had no specialist software “There‟s nothing out there to help with specific projects.”
  16. 16. Research Partner “It‟s pretty difficult to squeeze a risk warning into 140 characters.”
  17. 17. Research Partner ‘Is there a compliance ruling that you think ought to be introduced that does not already exist?’ • Level of individual’s compliance salary • Behavioural regulation • Super-clean share classes • Total Expense Ratio • Transparent Exit Charges
  18. 18. Research Partner Conclusions • FCA off to a good start • Belief in good business practice • Adaptability of firms – positive attitude • ...but the ‘tsunami’ is going nowhere