Regulatory Costs Expected to More Than Double for Financial Services Firms, According to Survey From Duff & Phelps

89% of asset managers, brokers and banks believe that regulations are increasing costs, and most believe that compliance spend could more than double in five years, according to a survey from professional services firm Duff & Phelps. The survey of nearly 200 senior financial services professionals shows that firms are typically spending 4% of their total revenue on compliance, and this could rise to 10% of revenue by 2022.

Despite this, firms are struggling to properly resource and comply with today’s financial regulation. For example, only 36% of firms who are subject to MiFID II are confident that they are on track to comply with the regulation by 3 January 2018.

What’s more, with new regulation increasing levels of personal accountability for compliance staff across the globe, the way compliance departments allocate their budget has changed. They are now not just counting for the costs of implementing financial regulation, but for the costs of hiring a replacement compliance officer or interim staff; for regulatory penalties and remediation in cases of failure; and for their own personal liability if things go wrong.

With financial regulation continuing to mount and the need for tighter cybersecurity rising on the agenda, firms are reassessing how to effectively allocate their resources to comply with financial regulation over the next five years. In a previous survey, Duff & Phelps found that nearly nine out of 10 (86%) financial services firms said they intend to increase the time and resources they spend on cybersecurity next year in anticipation of incoming regulation.

Julian Korek, Global Head of Compliance and Regulatory Consulting at Duff & Phelps, comments:

“The way that financial services firms allocate compliance budgets is changing. The pendulum is clearly swinging away from spending simply on financial regulation and moving towards the fight against cybercrime. Skyrocketing costs mean that firms have had to decide which regulations to prioritise, meaning that some will miss the already extended MiFIDII deadline. More guidance is needed from the regulator about how firms should allocate their time and money when complying with regulation, especially as the cost of Brexit, changes in US policy and cybercrime continue to emerge.”

89% of asset managers, brokers and banks believe that regulations are increasing costs, and most believe that compliance spend could more than double in five years, according to a survey from professional services firm Duff & Phelps. The survey of nearly 200 senior financial services professionals shows that firms are typically spending 4% of their total revenue on compliance, and this could rise to 10% of revenue by 2022.

Despite this, firms are struggling to properly resource and comply with today’s financial regulation. For example, only 36% of firms who are subject to MiFID II are confident that they are on track to comply with the regulation by 3 January 2018.

What’s more, with new regulation increasing levels of personal accountability for compliance staff across the globe, the way compliance departments allocate their budget has changed. They are now not just counting for the costs of implementing financial regulation, but for the costs of hiring a replacement compliance officer or interim staff; for regulatory penalties and remediation in cases of failure; and for their own personal liability if things go wrong.

With financial regulation continuing to mount and the need for tighter cybersecurity rising on the agenda, firms are reassessing how to effectively allocate their resources to comply with financial regulation over the next five years. In a previous survey, Duff & Phelps found that nearly nine out of 10 (86%) financial services firms said they intend to increase the time and resources they spend on cybersecurity next year in anticipation of incoming regulation.

Julian Korek, Global Head of Compliance and Regulatory Consulting at Duff & Phelps, comments:

“The way that financial services firms allocate compliance budgets is changing. The pendulum is clearly swinging away from spending simply on financial regulation and moving towards the fight against cybercrime. Skyrocketing costs mean that firms have had to decide which regulations to prioritise, meaning that some will miss the already extended MiFIDII deadline. More guidance is needed from the regulator about how firms should allocate their time and money when complying with regulation, especially as the cost of Brexit, changes in US policy and cybercrime continue to emerge.”