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Finance firms spend millions on compliance, but lack long-term strategy

Numerous regulations were introduced worldwide to make financial services institutions more resilient following the monetary crisis of 2007 to 2008. Now, these regulations, which global management consulting firm Accenture collectively calls global structural reform (GSR), are having an impact on how companies target spending: More than half of financial institutions expect to invest $200 million to revamp their business models so they can meet GSR regulation requirements, according to Accenture’s 2015 Global Structural Reform Study. The report’s authors said that while the investments are a step in the right direction as these organizations strive to build resilience in the wake of the crisis, their focus is more on complying with the demands of GSR regulations like Dodd-Frank and Basel III than on strategies to stay competitive in the long term.

The study is based on a survey of 131 global banking, insurance and capital market institutions. Fifty-six percent of these institutions reported planning to spend $100 million or more on technology expenditures related to GSR, and another 56% anticipate $100 million or more in non-technology spending to comply with GSR. Nearly one-third of those surveyed expect to spend at least $500 million on GSR expenditures.

These significant investments are justified, wrote the study’s authors, considering that only about 21% of these organizations have achieved compliance with key GSR regulations. Furthermore, respondents expect an increase in the number of full-time employees dedicated to business changes to meet GSR requirements: 61% plan to dedicate 100 or more full-time employees to technology changes, and 69% will add non-technological employees.

Despite the heavy compliance focus, there are organizations making strides in thinking strategically about GSR by revamping their business processes and product suites. For example, 57% of respondents indicated they will tailor their geographic footprint, and half plan to divest geographic units or relocate their headquarters or business units. The authors believe these moves could lead these organizations to consider new technologies or operational models that are not as costly or risk- and capital-intensive. Moreover, 48% said they are doubling down on their core competencies over the next two years to achieve market-driven specialization, while 62% are planning to launch new products or services over the next two years.

Although compliance officers are relatively new to the leadership table, they must strike a balance between adding strategic value to their organization and meeting the requirements of GSR regulations, said Samantha Regan, one of the authors of the study and a lead in Accenture’s regulation and compliance practice.

“It is important that strategic changes to the organization — such as changing where and how a firm conducts its business or leveraging new, more sophisticated technologies and digital applications — are implemented in incremental stages and are in line with the changes the firm is undertaking for regulatory purposes,” she said in an email.

Compliance officers and their firms can achieve this by crafting a clear roadmap that first tackles the minimum regulatory requirements and eventually supports enhanced capabilities and evolving business models to help them compete in their target markets, said Regan.

“Compliance professionals who can keep pace with this changing ecosystem, partner with the front office and help the organization effectively meet changing regulatory [and] customer demands will be integral in driving competitive advantage,” she added.

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