Third of firms reject profitable opportunities due to conduct concerns
Just under a third (29 per cent) of financial services firms have rejected profitable new business opportunities due to culture and conduct concerns, a report by Thomson Reuters has revealed.
The report, 2023 Cost of Compliance, found that firms expressed concerns that these aforementioned opportunities might have undermined their efforts to improve their culture and avoid misconduct.
Reuters stated that these findings come as financial institutions have “come under pressure” from regulators to ensure that they are properly managing cultural and conduct risks.
“Poor business culture and misconduct are believed to have been a significant contributing factor to the Global Financial Crisis and subsequent scandals,” it explained.
The need to balance competitive and compliance pressures reflects the difficult economic environment Mike Cowan, Thomson ReutersThe survey, which gathered responses from over 350 compliance practitioners, found that 46 per cent of UK and EU companies are expecting greater focus on implementing what is a “demonstrably compliant culture” in the future.
This was ahead of the US and the rest of the world at 39 per cent and 30 per cent respectively.
It was also reported that 71 per cent of respondents believe increased regulatory focus on culture and conduct will also increase the personal liability of senior managers.
This was of greater concern for firms in the UK and EU as 81 per cent of the region's firms stated they expected that it would lead to increased personal liability.
However, Reuters warned that this risk of compliance officers facing regulatory action if the company runs afoul of certain laws is "placing greater pressure" on compliance officers and may be "dissuading" potential new recruits.
Reuters additionally reported that increasing complexity of regulatory requirements means companies are having to spend more on senior level regulatory staff.
Thomson Reuters senior regulatory intelligence expert, Mike Cowan, said: “The gap between the volume and speed of regulatory change and firms’ ability to comply with those changes is putting financial services firms under pressure.
“The need to balance competitive and compliance pressures reflects the difficult economic environment in which firms are working and the competing demands on compliance budgets.
“Continual increases in the number of regulations are leaving firms more exposed to compliance and regulatory risk but compliance teams are having to meet that challenge with little or no increase in budgets.”
The survey additionally found 61 per cent of respondents expected the cost of senior compliance staff to increase in the next 12 months, with 40 per cent saying this was due to the volume of regulatory requirements.
Looking ahead, 73 per cent of businesses expect the volume of regulatory information published to be higher over the next 12 months.
This increased regulation is expected to impact the amount of time that companies need to liaise and communicate with regulators and exchanges, with 51 per cent expecting the time to be higher over the next 12 months.
For the UK and the EU, this rises to 55 per cent..
tom.dunstan@ft.com
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