Doing more with less. It’s not an appealing prospect, but that is the hard reality facing financial institutions’ compliance teams.
Compliance risks and responsibilities continue to swell, driven by never-ending regulatory change. The speed and number of sanctions implemented in response to the war in Ukraine has further increased the pressure on resources, observed Thomson Reuters’ annual Cost of Compliance report.
As have global efforts to clamp down on money laundering and tax evasion.
A new Eurojust report on money laundering said cases have been rising steadily since 2016, with over 600 cases brought to the agency in 2021, more than double the number registered in 2016. Identifying the beneficial owner of criminal assets is a particular challenge in many money laundering cases, the report noted. Cryptocurrencies, which are increasingly misused by criminals to launder illegal profits, pose another.
The increased regulatory scrutiny – which has seen global money laundering-related fines total over $23 billion in just the past three years – is expected to drive up spending on anti-money laundering (AML)/Know Your Customer (KYC), data, information and services by 15% to $1.56 billion in 2022 in response.
Compliance under strain
The competing compliance priorities and resource constraints mean many financial services firms are struggling to meet their commitments and maintain an appropriate risk and compliance culture, warned the Thomson Reuters report.
“The 2022 results show a frustration among respondents that, despite compliance’s widening duties, staff numbers are unlikely to grow, mostly because staff costs are increasing [exacerbated by shortages of skilled professionals] and budgets remain tight,” the authors noted.
Two-thirds of the survey’s respondents expect the cost of senior compliance officers to rise (with 13% predicting the cost will be significantly more), compared to 47% in 2021.
The regtech solution
Technology offers the only real answer.
According to the Thomson Reuters report, the future of the compliance function will be data- and technology-driven. “Financial services firms and their compliance functions are moving to a more automated environment and embracing digital transformation,” it said.
Automating repetitive and mundane activities where possible alleviates teams’ workloads, freeing staff to focus on more complex tasks. The enhanced operating efficiencies will then reduce compliance costs.
“At a compliance function level, applications were being used for compliance monitoring, regulatory reporting, financial crime (including anti-money laundering/counter-terrorism financing (AML/CTF) and sanctions), as well as onboarding and know-your-customer (KYC),” observed Thomson Reuters’ Fintech, Regtech and the Role of Compliance in 2022 report.
But it is often a fractured picture, with multiple systems used for multiple processes on multiple repeat occasions.
The power of a single investor record
Where firms can achieve real cost and time benefits is by having a single, accurate, up-to-date global investor record that can be used across multiple compliance obligations.
Consolidating AML and regulatory reporting processes on an end-to-end, multifunctional, multi-jurisdictional compliance solution strips out the layers of technology and support cost that weigh down so many compliance departments. And by shifting to a unified system that allows firms to create a single, golden-source investor record that can be easily enriched, maintained and updated, multiple downstream benefits ensue.
Onboarding becomes a one-time exercise, making for a smoother, more client-friendly experience. Storing static data and documents in a centralised repository enables key compliance information to be shared across regulations and jurisdictions – whether to meet multiple authorities’ AML obligations, or as part of CRS and FATCA tax reporting. Eliminating requests for duplicate information eases internal teams’ workloads, cuts error rates and minimises the client aggravation from having to contact them multiple times.
Initial and ongoing client screening are streamlined. Reporting accuracy is improved. Rule changes are easier to manage. And regulatory risk reduced.
With rising regulatory burdens piling more pressure on already stretched compliance departments, there is too much at stake to take any other approach.
ABOUT DEEP POOL
Deep Pool is the #1 investor servicing and compliance solutions supplier, providing cutting-edge software and consulting services to the world’s leading fund administrators and asset managers. Our flexible solution suite, developed by an experienced team of accountants, business analysts and software engineers, supports offshore and onshore hedge funds, partnerships, private equity vehicles, retail funds and regulated financial firms. Deep Pool is a global organisation with offices in Dublin, Ireland, the United States, the Cayman Islands and Slovakia. For more information, visit: www.deep-pool.com.