Compliance costs place greater burden on advisers

The IFA Recruiters' executive search consultant Jamie Bradbury told FTAdviser he was "constantly in conversations with advisers, where the issue of compliance crops up".

According to Bradbury: "The need to keep up with regulation and all this entails often feels like a burden for many smaller advisory firms.

"In terms of recruitment, there certainly is a lot of competition for highly qualified compliance officers, which can prove difficult for smaller advice firms when it comes to recruitment and retention."

The onerous costs of compliance...continue to drive forward the rates of exit from the profession.Stephen Hagues, Retiring IFA

Similarly, Stephen Hagues, founder of Retiring IFA, commented: "There is no doubt that the onerous costs of compliance and the rising costs of professional indemnity cover continue to drive forward the rates of exit from the profession.

"Typically, over half of the retiring principals cite the cost of compliance, PI cover or their perceived risk of future changes at the whim of government policy as a reason for exit."

The comments came as research by Thomson Reuters Regulatory Intelligence signalled the rising cost of compliance on financial services companies. 

The 29-page report, Cost of Compliance 2022: Competing priorities, claimed that, following years of high regulatory activity, three-quarters (74 per cent) of financial services firms expected to see their regulatory burden increase in the next 12 months.

However, this would come without the companies being able to increase staff numbers to handle the additional work.

In 2021, Thomson Reuters Regulatory Intelligence recorded 64,152 regulatory alerts (significant regulatory changes) across 190 countries, with 67,125 recorded in 2020.

In comparison, the average number of alerts in the previous decade (2010-19) was just 33,954 a year.

The study said: "Even a decade after the Global Financial Crisis, there continues to be a rising tide of regulation in the financial services industry."

When asked which areas they expected to make the largest demands on compliance resources, the most common answers were: 

• Assessing cyber resilience (55 per cent of respondents)
• Implementing a demonstrably compliant culture (addressing concerns of regulators) at 47 per cent 
• Post-pandemic reviewing and planning (42 per cent).

Senior regulatory intelligence expert at Thomson Reuters Susannah Hammond said: "Financial services firms face extremely high levels of regulatory activity yet headcount within compliance functions is expected to remain relatively flat.

"This means teams will be forced to pick up more work, putting them under considerable pressure.”

She added: “Some businesses are planning to deal with this excess workload by outsourcing more regulatory work and deploying more technology.”

Authorised firms have more work to do to overcome this difference in regulatory approach. Matthew Connell, CII

Matthew Connell, policy and public affairs director at the Chartered Insurance Institute, noted: “Compliance professionals play an essential role is setting and maintaining professional standards within firms.

“As such, in-house compliance professionals who work within authorised firms have to accept greater individual accountability to the regulators than those who act in a purely advisory capacity as consultants.

"As a result, it may be that authorised firms have more work to do to overcome this difference in regulatory approach.”

Developments such as the new consumer duty regulations have also posed some problems when it comes to understanding what is needed and interpreting the rules and regulations.

Bradbury commented that some of the less specific wording of the consumer duty can leave some advisers "unsure as to what to do or what their full obligations are.

"Keeping on top of these new rules compounds the need for highly skilled compliance professionals".

simoney.kyriakou@ft.com

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