In the past 10 years there’s been an explosion in spending on compliance and compliance staff, driven by an ever-growing list of regulatory requirements. The compliance function is undergoing an operational evolution in an effort to keep on top of this new workload, and organisations have been varied in their approaches.

Nothing fails faster – or looks worse to the regulator – than an understaffed, underfunded compliance department. However, hiring more people to operate within a firm’s existing parameters is no longer enough to stay on top of the increasing workload. Compliance now needs to be central to the way a business operates and positions itself in the market.

According to McKinsey’s Benchmarking survey, the proportional size and budgets for compliance vary significantly from one organisation to the next: an indication that compliance has yet to establish a recognised, sustainable balance between size and effectiveness.

What does the compliance function of the future look like?

“The future of a successful compliance function is striking the optimal balance between keeping the business compliant with regulation but also allowing it to thrive, to serve its customers well and to compete effectively in its markets”, says Debra Walton, Chief Customer Proposition Officer at Refinitiv.

Regardless of where it sits, a mature compliance function should have a ‘seat at the table’ in influencing strategic decisions. The compliance officer must ensure there is a reporting process to the C-Suite and the Board so they are aware of material issues before they become public headlines.

The challenges of digitising risk management

Banks and financial organisations are already proving the benefits of using AI-enabled technologies such as digital identity verification, which helps them save millions each year in mounting fines from the regulator as well as solve many of the onboarding hurdles they would previously have had to deal with.

McKinsey’s report The Future of Risk Management in the Digital Era reveals that nearly 30 percent of banks in Europe and the rest of the world have invested over 25 percent of their annual risk budget to digitise risk management. Many of its respondents had ambitions to digitize 80 percent or more of risk processes in the next five years. Respondents also listed the following as key barriers to digitising risk:

● Legacy IT (85 percent)
● Data challenges (70 percent)
● Culture (45 percent)
● A shortage of talent (40 percent)
● Complex organizational structures (40 percent)

It’s worth noting that these all scored higher than ‘regulation’ itself (35 percent), indicating that there are organisational hurdles to overcome before certain efficiencies can even get to the point of trial.

Digital disruption: impact on evolving roles and functions

Any RegTech or digital solution will have to operate within existing frameworks and alongside legacy systems, meaning considerable disruption may be unavoidable. For example, management of paper systems may no longer be necessary, and this could have staffing implications. There will also be a need to either digitise or otherwise manage older paper documents, entailing a period of additional work as part of the implementation programme. Resources may also need to be devoted to retiring or ensuring appropriate interfacing with legacy document management systems.

Businesses must be prepared for the fact that additional resource may need to be called upon to ensure these workstreams are delivered quickly so that they can free up time to implement new RegTech solutions.

Ensuring you have the right skillset

The right talent is a crucial enabler of change towards a more data-driven and analytically enabled function, with the candidate profiles seen as most critical now including data scientists and modelling experts.

Compliance functions are set to have a far greater share of digital-savvy personnel with fluency in the language of both risk and the business, operating within an agile culture that values innovation and experimentation. Some leading banks are even beginning to set up talent academies to enhance the data and analytics capabilities of their employees. Successful applicants for compliance officer roles and compliance manager roles will now possess the following qualities:

Technology-driven: Flexible and agile adopters of new technology with the ability to develop and test proofs of concept for potential RegTech solutions
Data driven: A next-gen compliance manager must adopt a forward-looking approach, focusing less on issues that have already occurred and instead anticipating the risks that could emerge, being able to identify warning signs
Experienced with speaking to clients: Those who’ll bring in a more marketing focussed approach to real life situations rather than just looking at scripts and taking decisions without considering the business-wide and commercial impact.
Influencers: the successful compliance officer will be influential from Board level down and visible across the business, to ensure buy-in and drive change in a way that aligns with company – and employee – values.

As compliance teams grapple with the pressures of mounting regulatory workloads and the pain points that come with digital transformation, they’ll increasingly begin to seek out considered hires for long-term success – often at speed – as more and more firms are creating compliance contract roles to bridge the gap. Chris Steele, director of banking risk and regulation at KPMG UK says “Firms in the financial services sector have seen a huge growth in both compliance requirements and the number of staff required to deal with those requirements, with some banks having four times the number of compliance staff than before the last financial crisis.”

As advised in our 2021 Salary Survey, following a recession or economic shock the contract recruitment market is generally the first to pick up. So readiness with your contingent workforce strategy is key to ensuring a timely and efficient move towards a fully future-proofed compliance function.

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