Report Summary

Faced with the prospect of far-reaching reform over the next few years, many financial institutions are already formulating a response. Leading banks recognise that a proactive approach to meeting their future obligations, along with one that maximises the efficiency of the compliance process, will lead to increased competitiveness in the longer term. Accordingly, they are taking active steps to re-evaluate their business model, revamp their capital and liquidity management, and ensure that their compliance process is as streamlined and effective as possible.

Here are the key findings of this research:

• Effective regulatory compliance benefits businesses across a wide range of performance metrics. Survey respondents who consider their institution to be effective at using compliance as a source of competitive advantage derive a broad range of benefits from this more proactive approach. They have more effective risk management, better business conduct, and also enjoy an enhanced reputation with customers, investors and rating agencies. They are also much less likely to suffer a negative impact on their revenue and profitability from forthcoming regulation.

• Financial institutions that undertake only the minimum measures required to achievecompliance will be at a disadvantage to those that take a more proactive approach. Adopting a “bare bones” approach to compliance is a false economy. Our survey shows that, while it may save money in the short term, it stores up problems for later. Respondents who do only the minimum to achieve compliance spend more time and resources on regulatory activities than those who take a more proactive approach. They are also less effective at understanding the impact of regulation on their business, find it harder to deal with compliance breaches and are less able to use compliance as a source of competitive advantage.

• The increased costs of compliance will require financial institutions to look carefully at how they structure and implement compliance activities. Dealing with the high costs associated with regulation will encourage companies to think differently about how they co-ordinate and manage their compliance activities. Currently, this is an area of weakness for many institutions. Fewer than half of respondents say that they are effective at co-ordinating individual compliance projects and fewer than 40% say that that are effective at maximising the efficiency of the compliance process. Leading institutions are addressing these issues by improving co-ordination between disparate projects and using technology to streamline and facilitate the process. They are also exploring the integration of regulatory risk management into broader enterprise risk-management strategies.

• A more efficient approach to compliance minimises the risks associated with regulatory risk. Respondents who run an efficient compliance process are much less likely to suffer a negative impact from gaps or failures in regulatory risk management than those that are less efficient. They are less likely to have encountered increased regulatory scrutiny from authorities, and much less likely to suffer damage to their reputation from compliance issues.