With at least 10 major pieces of regulation approaching, containing tens of thousands of pages of rules, international investment firms are facing a deluge of expensive and repetitive regulatory activity.
A recent survey by Thomson Reuters[i] found that across the globe 22% of compliance staff are spending over 10 hours a week tracking and analysing regulatory developments. They commented “Despite the increasing volume of regulatory change, compliance teams do not appear to have the capacity to devote the extra resources needed to adequately consider these additional developments.”
With the average investment management compliance team now standing at 12 people[ii], this means there is an average of two full-time staff working on tracking and analysing regulatory developments in every single firm.
A salary survey by the recruitment specialist Morgan McKinley[iii], found that compliance salaries were rising and candidates were getting multiple offers for jobs. Senior compliance staff are now receiving basic salaries of between £110-160K, and the average team of 12 people will be costing each firm over £1M. Good compliance staff are both expensive and scarce and work is being duplicated across firms as they each have to process every piece of regulation.
Clare Vincent-Silk, a specialist consultant at Investit observes “Most firms are dealing with regulations one-by-one using a project-based approach. When they run out of project capacity they have to cap the number of regulations they are processing.”
A group of major global investment firms have now decided to work together to help cut the costs of compliance. They have asked Investit, the specialist investment management consultancy, to develop a Regulatory Heatmap tool through the Investit Intelligence Service.
This Regulatory Heatmap takes all the individual pieces of regulation and examines the practical impact across the firm department by department. It then aligns the impact to a timeframe, allowing firms to see where urgent work is necessary, and where projects could be combined to comply with several pieces of regulation at once.
"This is a deceptively simple concept", said Gina McCafferty, who leads the Investit Intelligence service. "Our clients told us that they had plenty of detailed interpretations coming through from law firms, compliance specialists, and accountancy firms - and while these compliance and legal newsletters are great - they do not translate into the real impact on different areas of the firm. Our work creates a single overview document which can be used to coordinate and drive the changes required to remain compliant across the entire firm."
Sarah-Jane Dennis, an expert in Operations and Systems at Investit, has been coordinating the complex streams of work: "We have a team of people working on all the different regulations, reading them, interpreting them, and keeping abreast of changes and developments. We update the timelines, impact analysis and their severity as the regulations develop."
Investit's clients are also able to have customised versions of the Heatmap developed, giving them their own Regulatory Heatmap. "There are two major cost savings involved", says McCafferty. "Firstly we are effectively providing a centralised compliance interpretation service, filling in the difficult gap between compliance and operations specialists. Secondly we are enabling our clients to get the best value out of any compliance-related change project. Instead of doing fifteen separate regulation-related projects, they can now align their projects very easily".
Regulations covered by Investit’s Regulatory Heatmap:
- Alternative Investment Fund Managers Directive
- Capital Requirements Directive IV
- Credit Rating Agencies
- Dodd-Frank Act
- European Market Infrastructure Regulation
- Financial Transaction Tax
- Foreign Account Tax Compliance Act
- Institutions for Occupational and Retirement Provisions Directive II
- Investor Compensation Scheme Directive
- Market Abuse Directive II & Regulation
- Markets in Financial Instruments Directive II & Regulation
- Packaged Retail Investment Products
- Retail Distribution Review
- Solvency II
- Undertakings for Collective Investments in Transferable Securities IV
- Undertakings for Collective Investments in Transferable Securities V
- Volcker Directive - Proposed Rules
[i] Thomson Retuers Accelus Cost of Compliance Survey 2012
[ii] Estimate by Investit
[iii] Morgan McKinley Financial Services, Compliance 2012 Salary Survey