The Rising Cost of Compliance & How the Best Banks Respond [Infographic]
The cost of compliance is rising steadily for financial institutions nationwide. Since it's budgeting season, now is the time to learn a little more about rising compliance costs, what's driving them, and how the best banks are responding.
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It’s a wonderful Wednesday morning, and you’ve just arrived at work. Traffic wasn’t so bad, and Karen from Accounting had just made a fresh pot of coffee when you got into the office. You inhale the earthy aroma steaming from your favorite coffee mug, and contemplate what you will achieve on this fine day.
And then you check your inbox. The crash back to reality is more jarring than a Luke Kuechly tackle on 4th & Goal.
“ATTN: Invoice for November 2017”
“Your Subscription Renewal is Coming Up”
“2018 Budget Meeting”
These are just a few of the subject lines that are sure to make you cringe. Nobody likes watching expenses pile up year after year. Compliance professionals in particular know just how quickly expenses can rise.
Since 2008, banks have spent more than $321 billion on settlements, enforcement actions and fines. To further put this into perspective, on the whole, the industry spends approximately $270 billion a year on compliance-related costs.
To make matters worse, it’s reported that regulatory costs could more than double over the next five years, according to a survey of 183 senior staff of asset managers, brokers, and banks. In addition to this, 70% of firms expect the focus on managing regulatory risk to increase over the coming year.
With these types of trends, it shouldn’t be suprising that 10% or more of most banks’ operating costs can be attributed to compliance costs. But chances are, if you’re reading this, you work in compliance, and you’ve seen the signs. So, why is it that no one else at your bank is listening to you?
In this infographic, we break down the rising cost of compliance and how this will affect your budget forecasting in the coming years.
Hopefully, with this, you’ll be armed with a compelling narrative and bullet-proof statistics that will help you make your case when it comes time to negotiate your future compliance budget.
[Sources for the infographic are linked throughout the article.]
Are We In a Compliance Hiring Bubble?
If you work on a financial institution’s HR or compliance team, you’ve probably noticed the compliance department has been steadily growing. In fact, in some institutions, compliance-staff levels now match front-office staff numbers one-to-one. In response, banks are looking at other ways to manage compliance without increasing staff.
This need to handle higher work volume and maintain efficiency without increasing team size is compounded by the fact that 60% of firms expect the cost of senior compliance staff to increase slightly or significantly in the next year. That’s a huge jump!
While larger firms can afford to hire more staff, others are focusing on up-skilling existing talent while retaining experienced compliance personnel with competitive salaries, benefits, and an excellent work culture.
Additionally, many institutions are turning to technology to help ease the burden of compliance. These tools include compliance data analysis software, outsourced training, complaint management tools, and more. By using new technologies to increase efficiency, it’s reasonable to expect that some institutions can reduce compliance costs, and even slow hiring growth in the coming years.
Who Pays the Most for Compliance?
The little guy is the underdog, fighting an uphill battle; does this story sound familiar? While it’s probably not as dramatic as David v. Goliath or even McGregor v. Mayweather, it should be noted that smaller banks are disproportionately affected by compliance regulation.
Banks with under $100M in assets reported that total compliance costs represented 8.7% of their non-interest expense. On the other hand, banks with $1B - $10B in assets reported costs representing only 2.9% of their non-interest expense. This means smaller banks may be bearing a heavier relative burden than their larger counterparts.
This is partially because the regulatory requirements are roughly the same across asset bands. While larger institutions may be able to spend more, smaller institutions are required to adhere to the same or similar compliance requirements with fewer available resources.
As mentioned above, some community and regional financial institutions have found that this burden can be reduced by utilizing cost-effective software to reduce their compliance overhead. In fact, 33% expect more compliance involvement in evaluating FinTech and RegTech solutions in the coming year.
Finally, What Does This Mean for My Compliance Budget?
Needless to say, this is the key question and probably what most of you care about. We know that costs are rising and this is exemplified by 89% of financial services industry executives globally expecting continued cost increases in their compliance over the next two years.
Firms typically spend 4% of their total revenue on compliance, but that could rise to 10% by 2022, with around nine out of ten of those polled stating that regulatory changes were increasing their compliance costs.
Again, you can maximize your compliance budget by adopting cost-effective softwares and technologies to save time, reduce the need for additional staff, and even gain expertise. Community banks spend an average of $818K annually on compliance. To contextualizing this, we estimate that most of companies will save at least $35,000 by using TRUPOINT Analytics, due to savings in time and staffing, versus not having a compliance analysis software.
53% of firms expect the total compliance budget to be slightly or significantly more over the next 12 months. Nearly 90% expect costs to rise, as well as the amount of revenue that is purely dedicated to compliance, you really have to ask yourself if you and your company are doing enough to squeeze as much out of your budget as possible.
When you’re ready for a more efficient budget, TRUPOINT is here to help. Our asset-based pricing structure means our compliance software and consulting are designed to fit your budget and help you stay competitive.
It's the holidays! We hope that this compliance-themed holiday poem brings you joy and good cheer this season. Merry Christmas, Happy Belated Hannukah, Happy Kwanzaa, and warm wishes for the new year to all of our customers, friends, colleagues and partners. You have helped make this year incredible. Now, '"twas the Monday before Christmas, when all through the bank..."
About Dave Patnaik
Born and raised in Charlotte, NC, I went on to be a Blue Devil at Duke University in Durham, NC. After graduating, I moved to Boston and Shanghai, before coming back to Charlotte. Along the way, my favorite part of work has always been exploring new and innovating marketing techniques to grow the business. I spend most of my free time playing guitar, reading, and staying fit. My proudest accomplishment is winning 3rd place out of 3 in the Regional Highland Games for the Under-12 age bracket.