Majority of financial services firms report increased compliance costs – survey finds

The majority (76%) of financial services firms have increased compliance spending in the past year, according to the annual Compliance Health Check Report from SteelEye, the company behind the first and only truly integrated monitoring solution.

Increased regulatory scrutiny across financial services last year, as demonstrated in SteelEye’s fine tracker showing record penalties issued by regulators in 2022, meant firms were under intense pressure to meet compliance standards. In response, financial firms spent a large proportion of their revenue on keeping up with the complex regulatory landscape – with nearly a third of firms (27%) claiming that between 21% and 30% of their total spend was spent on compliance.

The data adds to the view that compliance teams are struggling to keep up with requirements, as investment in technology to reduce manual workloads (chosen by 38% of businesses), and more regulation to comply with (32%), were thought to be the top two reasons for the increased compliance costs.

Hiring and retaining the right talent was chosen by only 21% of firms, suggesting that compliance professionals recognize the need to use a vendor to support compliance operations as regulators become increasingly demanding. This trend is set to continue as more than two-thirds of businesses (73%) expect to invest more in RegTech over the next 12 months, compared to 44% in 2022, with expectations that some of this investment will go towards external third party solutions.

With the report also finding that 62% of firms are concerned that traders and portfolio managers are taking more risk in a recessionary environment, investment in compliance will continue to increase as firms look to monitor activity more closely.

The findings come after scrutiny of management and risk mismanagement in the wake of high-profile bank bankruptcies this year. Against this backdrop, the banking sector spends most on technology to support compliance. Sell-side firms – including banks and brokers – are leading the way in monitoring Microsoft Teams, WhatsApp and Zoom. 54-62% of banks monitor these channels today, and 40-43% have started monitoring them in the last 12 months. This compares to the previous year when research showed that only 12-24% of firms, banks and brokers monitored these channels.

Commenting on the findings, SteelEye CEO Matt Smith said, “The recent bank failures are going to put further pressure on compliance teams in the financial sector. Although our report shows that 2022 saw significant progress in the sophistication of compliance technology, as a result of an increase in investment across the industry, this level of investment will need to continue into 2023 to meet the increasing regulatory pressure expected in the fallout of recent events.”

SteelEye’s second annual Compliance Health Check Report surveyed more than 300 senior financial services executives and risk professionals about their current compliance concerns, priorities and spending.