Financial services firms are reporting increased compliance expenditure, with 76% of firms experiencing a rise in compliance costs over the past year, according to the 2023 Annual Compliance Health Check Report from SteelEye. The report found that the heightened regulatory scrutiny across financial services last year meant that firms were under intense pressure to meet compliance standards, leading to a large proportion of revenue being spent on compliance.
Nearly a third of firms (27%) reported that between 21% and 30% of their total expenditure was spent on compliance. The findings also suggest that compliance teams are struggling to keep up with requirements, with investment in technology to help reduce manual workloads and more regulation to comply with being believed to be the two main drivers of the increased compliance expenditure.
Hiring and keeping the right talent was only selected by 21% of firms, indicating that compliance professionals recognize the need to use a vendor to support compliance operations as regulators become ever-more demanding. The trend is set to continue, with more than two-thirds of firms (73%) expected to invest more in RegTech over the next 12 months, compared to 44% in 2022, with expectations that some of this investment will go towards external third-party solutions.
The report also found that 62% of firms are concerned about traders and portfolio managers taking more risks in a recession environment, leading to increased investment in compliance as firms look to monitor activity more closely. The banking sector is leading in terms of investment in technology to support compliance efforts, with sell-side firms – including banks and brokers – monitoring channels such as Microsoft Teams, WhatsApp, and Zoom.
Only 21% of businesses chose to focus on finding and retaining the best talent, which indicates that compliance professionals are beginning to understand the value of using a vendor to support compliance operations. More than two-thirds of businesses anticipate increasing their investments in RegTech over the next 12 months, compared to 44% in 2022, thus this trend is expected to continue.
Commenting on the findings, Matt Smith, CEO of SteelEye, said, “The recent banking failures are going to add further pressure on compliance teams in the financial sector. While our report shows that 2022 saw huge progress in the sophistication of compliance technology as a result of an increase in investment across the industry, this level of investment will need to continue into 2023 to meet the mounting regulatory pressure that is expected in the fallout of the recent events.”
SteelEye’s second Annual Compliance Health Check Report surveyed over 300 senior financial services compliance and risk professionals about their current compliance concerns, priorities, and spending. The findings highlight the need for financial firms to invest in technology and external third-party solutions to support compliance efforts, as well as the ongoing pressure on compliance teams to keep up with regulatory requirements. As the industry continues to face increased scrutiny, it is likely that investment in compliance will continue to rise in the coming years.
