The ability of financial institutions’ compliance function to manage risk is being challenged by rising expectations for the function to play a stronger role in front-office processes, the increased volume and complexity of regulations, and a lagging data and technology architecture, according to a new compliance risk report from Accenture (NYSE:ACN).
The latest of Accenture’s annual reports on compliance risk, “Compliance at a Crossroads: One Step Forward, Two Steps Back?” is based on a survey of more than 150 compliance officers at banking, insurance and capital markets firms across the Americas, Europe and Asia-Pacific.
The report found that the increased volume and complexity of regulations have destabilized the compliance function at many financial institutions, which are already facing increased expectations to take a more active role in front-office processes. According to the survey, 49 percent of compliance officers said that gaining a better understanding of how customer expectations are changing will be the compliance function’s most-needed capability in the next year.
“Compliance is in a unique position to leverage its dual advisory and control roles to offer distinct value to the front office,” said Steve Culp, senior managing director of Accenture’s Finance and Risk Services practice. “To maintain its position as a key strategic advisor to the business, the compliance function needs to develop more sophisticated business capabilities and play a stronger role in front-office functions. Understanding the customer is critical and will enable the function to become more deeply involved in processes such as product design and sales and distribution.”
The vast majority (87 percent) of survey respondents said that senior data officers will be a key organizational link for the compliance function to help rationalize data and drive informed decision-making. Armed with these skills, the function will be better able to maintain its seat at the table, which is particularly important given that the number of financial institutions whose compliance function reports directly to the CEO dropped by nearly one-quarter over the past two years, from 40 percent of financial institutions in 2014 to 31 percent today.
Operational efficiency is key
According to the report, enhanced technology sophistication will provide financial institutions with the ability to manage threats such as cyber risk, financial crime and business risks, which compliance officers cited as the top risks that their organizations will face in the next three years. The report states that leveraging technology to manage risks will reduce costs and enhance the consistency of controls that facilitate standardized regulatory reporting.
In fact, more than three-quarters of respondents (81 percent) acknowledged that managing a more complex set of risks with fewer resources will require the compliance function to optimize operations. In addition, two-thirds (67 percent) of respondents said that improving systems and adopting new technology tools will be the most important change that the compliance function will need to make in the next year if it is to manage risks effectively. Among the technology-related changes that might have the biggest impact are the use of industry shared services, which 80 percent of respondents said will become critical as industry data protection improves; and process automation, including robotics, which 73 percent or respondents said will improve efficiency.
“The Compliance function is facing significant challenges with the rapid pace of change in the regulatory and competitive landscapes, increased business expectations, and more pressure to manage conduct and human risk. Advances in technology, such as robotic process automation and advanced analytics, can help compliance officers demonstrate value by developing the agility to take on new business challenges and increase efficiency to deliver outcomes at scale,” said Samantha Regan, a managing director in Accenture Finance and Risk Services who leads the company’s Regulation and Compliance practice.
Accenture conducted a survey of 151 compliance officers at banking, insurance and capital markets firms across the Americas, Europe, and Asia-Pacific. Countries represented include the United States, Canada, the United Kingdom, France, Italy, Spain, Germany, Switzerland, Brazil, Australia, China (Hong Kong), Singapore and Japan. The survey was conducted in December 2015.
Accenture Finance and Risk Services is a business service within Accenture’s Financial Services operating group that provides management consulting, technology and outsourcing services to banks, insurers and capital markets organizations. Its services are designed to help financial services companies leverage the critical functions of risk and finance as competitive differentiators in executing their business strategy. It provides updates on the latest news and analysis of regulations across major global economies through the Accenture Regulatory Insights blog.