Exclusive Online Only Content
Compliance Technology
Playing Catch-up in E-archiving | The High Cost of Best Execution | Pre-trade Compliance: Better, Cheaper, Faster | Iron Mountain: Toward a Paperless Office | Compliance Is Still People-Powered |
Compliance Is Still People-Powered
Deloitte study says IT investments, integration can curb rising expenses
February 18, 2008
Compliance spending is growing at a faster pace than income at many of the largest U.S. financial institutions. Though that trend will likely continue, some firms are making investments in technology and integrating systems, which should ultimately cut costs, according to a report from Deloitte & Touche USA.
For the study, "Navigating the Compliance Labyrinth," Deloitte surveyed 20 of the top 50 banks and thrifts--80 percent of which had securities businesses, and 75 percent engaged in investment management. Compliance spending at the institutions grew by an average of 159 percent from 2002 to 2006, says the report. As a percentage of net income, compliance costs rose to 3.69 percent in 2006, up from 2.83 percent in 2002. Compliance costs varied significantly among institutions, notes Deloitte, suggesting that some may manage the function more effectively.
The report, released Jan. 14, says that 60 percent of the expenditures were on staff. "The tendency has been to respond to increased regulations by adding people, rather than by leveraging technology and improving processes," said Don Ogilvie, chairman of the Deloitte Center for Banking Solutions, in a statement.
Just 18 percent went to IT systems, hardware and software. "It is clear that banks could mitigate rising compliance costs by putting more focus" on an approach "that reduces duplicative and redundant processes, and builds business cases for more investment in technology solutions," said Ogilvie.
"There's a major need to focus on IT designed to reduce the cost of compliance," noted Deloitte & Touche partner Chuck Saia.
E. Michael Serbanos, VP of equity capital markets compliance at Raymond James & Associates in St. Petersburg, Fla., agreed. "Compliance and risk management have to become more electronic," said Serbanos. "We can't keep hiring more people to manage risk."
Third-Party Services
That will likely mean more business for third-party vendors as firms look to outsource tasks such as upgrading their IT systems, conducting regulatory audits, and designing compliance solutions. Regulations like the Bank Secrecy Act, Sarbanes-Oxley Act, Basel II capital accords and anti-money-laundering (AML) mandates are driving the need for outside providers, according to Deloitte.
"Clearly, if you can buy software that more efficiently and effectively meets regulatory requirements while fitting into the firm's workflow, that removes roadblocks that consume people's time, and becomes a solution that eliminates bottlenecks," said Bob Rosen, an AML solutions specialist at Dow Jones Enterprise Media Group.
Rosen said that AML is an area where firms are particularly turning to technology. "Securities firms have obligations to know their customers, where the money is coming from and where it is going," he said. They "must show that they have systems in place and software to monitor those systems."
Charles Schwab Corp. and Merrill Lynch & Co. have implemented solutions from Herndon, Va.-based Mantas, which provides automated surveillance of accounts, customers, and correspondents across business lines for suspicious activities and possible money laundering.
Amir Orad, chief marketing officer of Actimize, a New York-based supplier of AML and antifraud technology, noted that money laundering will be a big issue in 2008, and "for many years to come." Also, he added, "employee fraud via trading surveillance is garnering lots of interest. We find that customers are looking for help with solutions they can't develop in-house, valuing our big-picture overview."
