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Financial firms are investing more in tech to manage increasingly complex regulatory landscape

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Almost half of financial services firms (44%) are planning to invest more in RegTech solutions in the next 12 months to cope with the growing pressure on the compliance function in this fast moving and increasingly complicated regulatory and operational landscape. 

A further 41% expect to invest the same amount as the previous 12 months.
 
This investment is driving up the overall cost of compliance with almost all (90%) of financial services firms reporting increased compliance costs over the past five years. One in ten said costs have doubled.
 
That’s according to compliance technology and data analytics firm SteelEye’s first-ever Annual Compliance Health Check Report which is based on a survey of 170 senior financial services compliance and risk professionals in the UK and US on issues including the challenges they face, investment priorities and technology adoption.
 
Nearly half (44%) of compliance professionals struggle with challenges related to data management, including overlaying communications and trades to manage market abuse risk; using Management Information (MI) efficiently to demonstrate risk; and consolidating and normalising of structured and unstructured data. A fifth of (20%) of firms say keeping up with regulatory change is their biggest challenge in meeting regulatory obligations.
 
Opinions were split on dealing with regulators. While 42% said regulators are now more challenging to deal with, 48% said they now find it easier to deal with the regulator. This could in part be due to technology making compliance processes more streamlined and straightforward. Small firms[1] find it more challenging at 58%.
 
When asked if they think firms are well equipped to handle more stringent regulatory rules over the next five years, encouragingly, most respondents (75%) believe financial services firms are in a good position.
  
Administrative and repetitive tasks dominate compliance professionals’ work, pointing to the need for greater automation and digitalisation within the sector. In fact, half (50%) of respondents said at least half of compliance staff within their firm do administrative or repetitive tasks.
 
The survey demonstrated a clear trend towards centralised compliance management, with most (56%) respondents working within one team that oversees compliance for all branches and regions in which the company operates. Meanwhile, just 12% said they deploy a decentralised model where compliance is managed directly within individual jurisdictions. This is understandably more common for large organisations at 18%. In contrast, 88% of small firms’ compliance management is fully centralised. Centralisation of the compliance function can enable businesses to be more strategic and allow for richer learning across multiple jurisdictions. However, this hinges on a strong data foundation for the business as a whole.
  
When asked about their top two investment priorities for the year ahead, regulatory reporting ranked first overall. However, when breaking this down by region it becomes clear that regulatory reporting is a leading investment area in the UK, where communication surveillance is the top priority in the US, particularly among banks. This is unsurprising given the fact that US regulators are clamping down hard on communications rules. Last year’s headline-grabbing $200 million fine for J.P. Morgan by the Securities and Exchange Commission (SEC) demonstrated the importance of adequate monitoring of employee communications.
  
Some 31% of firms said they have fully implemented a degree of AI or machine learning in their compliance processes. A further quarter (25%) are investing in the technology but are still in the implementation stage. The subsections of larger firms1 and US-based respondents are even further along in that journey, with 75% and 95% respectively having partly or fully implemented AI and machine learning in compliance.
 
Those that have implemented AI are reaping the benefits. 100% of those who have fully implemented AI for compliance claim they have seen a marked improvement in the quality of their Management Information.
 
However, many firms are yet to take advantage of the potential of AI. Almost half (44%) said they have not started looking at AI’s possibilities for compliance. One cause of slow adoption might be the need for a strong data foundation which is necessary for successful AI deployments.

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