Understanding the changing landscape of Compliance for Financial Services

24 September 2018

The results of the 2018 State of Compliance Study from PwC are in, and this year's report highlights some significant new developments for Financial Services (FS) Organisations.

From our experience of working with clients in the FS sector, compliance continues to grow in stature becoming further embedded in the overall strategic priorities of organisations, and connected to the strategic goals of the business. As we have seen, the ultimate success of an organisation’s compliance programme will be defined by its agility and ability to adapt to the fast-paced changes both to the internal and external environment.

Within this year’s results, it was unsurprising to read that when Heads of Risk, Compliance and Audit were asked to prioritise the goals for their organisation's Compliance function, 56 percent of respondents cited meeting regulatory guidance or responsibilities as coming above everything else. This continues to be a trend within organisations, but is this at the expense of proactive and forward-looking compliance risk mitigation and management?

In our opinion, regulatory requirements should be seen as the minimum standard for any Compliance programme, but for the function to demonstrate value to the wider organisation, it must show that it can help support the organisation in delivering sustainable growth and enhancing its reputation in the markets.

To elevate the function's profile and value, there should be specific links between Compliance and strategy; and, in best cases, Compliance should be involved in the strategy-setting process. Setting a compliance programme that not only moves with regulatory developments, but that is inextricably tied to the changing business enables an organisation to develop with the understanding that the growth is sustainable and appropriate to the environments it operates in.

In terms of delivering an effective compliance function, two-thirds (66 percent) stated they use internal audit assessments or reports when measuring the effectiveness of policies and procedures, while at the same time, 52 percent reported a focus on the frequency of policy violations. These two sources of information are helpful to evaluate effectiveness, however, a focused and significant reliance on internal audit can result in a sizeable timing gap between the insights being provided, with audits occuring only on a periodic basis. Additionally, relying on policy violations to identify potential weaknesses also may not recognise where a policy or procedure is ineffective and failing to capture violations.

To address this issue, we expect to see a broader suite of such data points in use by FS operators. This will assist in developing a greater understanding of an organisation’s overall state of Compliance, specifically Key Performance Indicators and Key Risk Indicators relating to areas of compliance focus or regulatory attention. This will help to deliver more ‘real time’ and insightful perspectives on effectiveness.

We also expected technology to be growing in terms of importance, and the use of monitoring across a variety of systems to be used in aggregate to provide insight on general Compliance trends. In many cases, RegTech solutions are being developed to deliver such perspectives. However, it seems many are yet to identify technologies like automated learning (17 per cent) and predictive/automated tools (10 per cent) - often synonymous with RegTech developments - as areas to be leveraged further.

So, there you have it. These have been just some of the trends we've seen from this year's State of Compliance Study. If you'd like to find out more about the ongoing evolution of the Compliance landscape across the FS space, please read the full report today or contact us directly.

Paul Atkinson

Paul Atkinson | Partner
Profile | Email | +44(0)7764 958 656  

Duncan Scott

Duncan Scott | Director, Banking and Capital Markets Regulatory
Profile | Email | +44 (0)7894 393607

More articles by Duncan Scott

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