As the financial sector receives continually increasing regulatory pressure, most financial services firms may finally be beginning to take notice. The revelation comes from surveillance solution provider SteelEye; as it releases its annual ‘Compliance Health Check Report’.
Seventy-six per cent of financial services firms have increased compliance expenditure over the past year according to the SteelEye report. The company used its findings from its ‘Financial Services Fine Tracker 2022‘, which revealed that the Securities and Exchange Commission (SEC) filed a record $6.4billion in penalties, with its crackdown on WhatsApp usage totalling $1.1billion in fines.
Meanwhile, the Financial Conduct Authority (FCA) handed out 26 fines in 2022 – more than double the 10 it gave out in 2021. Such increases in North America and across Europe ensured that firms in the financial sector were under intensifying pressure to meet compliance standards.
As a result of these pressures, financial firms spent a large proportion of revenue to keep up with the complex regulatory landscape. Almost one-third of firms (27 per cent) claimed that they spent between 21 per cent and 30 per cent of their total expenditure on compliance.
SteelEye’s data supports the view that compliance teams are struggling to keep up with increasingly complex requirements. Thirty-eight per cent of firms opted to invest in technology to reduce manual workloads- while 32 per cent of firms did so due to an increased amount of regulation to comply with. These reasons were believes to be the two main drivers of increased compliance expenditure.
Change in priorities after high-profile compliance failures
Hiring and retaining talent was the preferred option of only 21 per cent of firms, suggesting that compliance professionals are recognising the need to use a vendor to support compliance operations, as regulators become ever-more demanding.
SteelEye expects the trend to continue as more than two-thirds of firms (73 per cent) expect to invest more in regtech in the next 12 months, compared to 44 per cent in 2022, with expectations that some of this investment will go towards external third-party solutions.
The new findings follow the scrutiny of governance and risk mismanagement in the wake of high-profile bank failures this year. Against this backdrop, the banking sector is spending the most on technology to support compliance efforts.
Sell-side firms (including banks and brokers) are now leading in terms of monitoring Microsoft Teams, WhatsApp, and Zoom. Between 54 to 62 per cent of banks are now monitoring these channels, with 40 to 43 per cent only starting to monitor them in the last 12 months. Research into the previous year found that only 12 to 24 per cent of firms, banks and brokers were monitoring these channels.
Matt Smith, CEO of SteelEye, discussed the report’s findings: “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 financial services sector, 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.”
Source: The Fintech Times