Hot off the presses, Accenture just published their 2016 Compliance Risk Study and the consulting firm arrived at one critical conclusion: that the Compliance function in many financial services firms is at a crossroads and, as such, Compliance needs to figure out the exact role that it wants to play in the future.
This year’s Compliance Risk Study, which based on a survey of over 150 leading Compliance officers at banking, capital markets and insurance institutions across the globe, shows the Compliance function needing to chart a path towards tangible, sustainable outcomes that will re-affirm its strategic positioning within the organization.
As such, we’ve summarized the 4 key challenges from the Accenture 2016 Compliance Risk Study below.
Demand on Compliance Continues to Grow in Scale and Complexity
New technology, and the related complexity that comes with it, is a key source of the increased demand on Compliance. As an increasing number of firms explore various new business models related to FinTech or digital business, for example, the once familiar Compliance landscape becomes much more difficult to navigate.
But on the flip side, technology can also help the Compliance function. New technologies, such as the ability to employ data science-based approaches to proactively identify and manage risk and violations, have emerged to shift Compliance to a more effective model of risk management and oversight. Unfortunately, such technologies are still in the early adopter phase, as many firms have yet to fully embrace this new model. But Compliance teams are aware that increased adoption of next-gen risk management tools is important, with two-thirds (67%) of firms indicating that adoption of new tools is important in the next 12 months.
The Growth in the Compliance Function’s Stature Appears to be Slowing
The study indicates that Compliance is facing struggling to perform as a strategic partner to the business, as nearly half of the study participants stated that the number one capability required for Compliance over the next year is a better understanding of how customer expectations are changing. Gaining this insight can help Compliance take a more direct role in key front office processes such as product design and sales / distribution by advising the front office on the risks of originating new business as such.
As evidence of Compliance struggling this is regard, only 31% participants represented by the 2016 Compliance Risk Study now report to the CEO, representing a 9% decrease from the 2014 level.
Meaningful Compliance Results Should be Delivered Against More Complex Stakeholder Expectations
Compliance teams are increasingly being asked to do more with fewer resources amidst an environment in which a more complex set of risks have emerged. To deliver meaningful results, Compliance will need to optimize their operations processes in order to increase effectiveness through improved efficiency. In fact, 81% percent of study participants have indicated that optimizing Compliance operations is exactly what they intend to do.
Without streamlining operations, however, Compliance teams will face challenges in managing the complex risks that have recently received significant attention of late. For example, half of study participants have identified Fraud and Financial Crime as a risk that will be challenging to manage in the next 12 months.
An example of operational improvement, according to Compliance teams, is leveraging technology instead of adding to Compliance headcount, as technology has the double benefit of reducing cost and enhancing the consistency of controls.
Decisions to be Taken, Choices to be Made
The study instructs Compliance teams to be confident in making the difficult choices necessary to deliver exceptional risk management and to reassert its role in the organization.
As guidance in achieving this, Accenture recommends the following principles to help navigate these choices:
- Reassert and clarify the role and mandate of Compliance, specifically in relation to the front office
- Improve resource utilization
- Prioritize the development of high quality data and technology architecture
- Value and incentivize development of Compliance talent
- Regularly communicate the results of what can be a multi-year transformation journey
It’s clear that Compliance is facing a tough challenge in addressing increasing risk and complexity, reduced resources, and operational inefficiencies. But Compliance teams can emerge victorious, and, in fact, Compliance teams have underscored their confidence in this regard. As a next step, however, Compliance needs to translate this confidence into a clear roadmap that proves to executive management that Compliance can be both an effective risk manager and a strategic advisor to the business going forward.