US, UK and Hong Kong financial services regulators have increased their expenditure over the last seven years by 59.4 per cent, an average of 8.075 per cent each year, since the end of fiscal year 2006/07, according to Kinetic Partners.
The increase may be the product of growing pressure on regulatory agencies to deepen the scrutiny of those working in the financial services industry following the crash in 2008.
Kinetic Partners’ research found that the US Securities and Exchange Commission (SEC), the UK Financial Conduct Authority (FCA) and the Securities and Futures Commission of Hong Kong (SFC) had a combined expenditure of approximately USD2.4 billion in 2012/13. This was over USD900 million more than the total expenditure before the financial crisis in 2006/07 of nearly USD1.5 billion.
However, the Kinetic Partners research found that the scope of this increase in expenditure spanned beyond increases in staff numbers at the three regulators. The study revealed that the number of regulatory staff increased by just 36.4 per cent from 2006/07 to 2012/13 across all three agencies.
Julian Korek, CEO at Kinetic Partners, says: “This disparity between expenditure and headcount could be indicative of a focus by the regulators to improve market surveillance by developing innovative technologies and hiring more experienced, specialised staff. For our clients across the banking, asset management and insurance sectors, we are seeing a mirroring of this investment in systems to monitor and report on transactions. This is coupled with a recognition that, for systems to work effectively, a different set of staff skills and training is required than traditional compliance or risk management expertise. We expect this investment in technology to continue to play a key role, in firms both large and small.”
In comparing the growth in expenditure between the three regulators, Kinetic Partners found that the biggest increase was at the SFC, which increased its spending by 120.2 per cent in the last seven years, taking it from USD69.25 million during the 2006/07 fiscal year to USD152.50 million by the end of the 2012/13 fiscal year. This compares to a 61.9 per cent increase at the Securities and Exchange Commission (SEC) in the US and a 48.4 per cent increase at the UK’s Financial Conduct Authority (FCA) over the same period.
Korek says: “The focus on effective regulation in the financial markets is no surprise following the 2008 crisis. The public is demanding that government agencies take greater steps to protect the public interest, which requires regulators to expand both the reach and efficiency of their monitoring activities. This not only requires more sophisticated tools, but also more feet on the ground. Regulators are demanding that firms have detailed policies, controls and monitoring such that if employees stray outside of these, it should be clear that they have committed a serious offence.”
Monique Melis, global head of consulting, Kinetic Partners, says: “Growth at the regulators is coupled with greater global coordination across different jurisdictions. This is vital for deterrence and oversight. Information sharing has improved dramatically over the last decade and has enhanced the regulators’ ability to be effective. Although there is still much work to be done in maximising efficient global cooperation, the willingness of regulators to collaborate as much as they have already indicates a move in the right direction.”