Compliance and Regulatory Consulting
Regionally targeted assistance for asset managers in compliance program development, implementation and maintenanceBy Jurisdiction
Duff & Phelps, the premier global valuation and corporate finance advisor, today published the results of its 2016 Global Regulatory Outlook, which gathers and analyzes insights from 193 senior executives in the financial services industry regarding the impact of regulation on the financial services sector.
The 2016 Outlook found that a majority of the C-Suite and senior level staff believe that regulation is having little or no effect on stability, and potentially making the industry less stable. When asked if regulatory changes in recent years have created adequate safeguards to prevent a future crash, only 6% of respondents answered in the affirmative. Of the remainder, 37% said they had not, with 54% saying that new rules offer only partial protection against another crisis. Additionally, fewer than a third of respondents felt that new regulation had improved investor and consumer confidence in the industry. This is a more negative view than reported last year, when 43% of those polled said confidence in the sector had been boosted by regulation.
Julian Korek, Global Head of Compliance and Regulatory Consulting at Duff & Phelps, said regulators are likely to be worried by the weight of industry opinion questioning the efficacy of regulation. “The findings may simply reflect the limitations of what regulation can achieve. There are, after all, few guarantees with financial markets. However, the depth and breadth of regulation continues to expand, with new requirements on firms and new areas brought within regulators’ remits.”
Additional Key Insights Include:
Global Agency Coordination: In addition to overall stability and consumer confidence, respondents also expressed concern over a perceived lack of coordination globally between regulators, with only 16% of respondents agreeing that the industry is effectively getting to a single global set of regulatory standards. Though there is still concern over convergence, 42% acknowledged that this is moving in the right direction.
Monique Melis, Head of Regulatory Consulting at Duff & Phelps, said that global coordination is unlikely to be resolved in the foreseeable future and this will remain a challenge for firms. “Even with transatlantic regulation outlining identical requirements, cultural differences between regulators and their enforcement regimes on each side would challenge any globally standardized approach.”
Corporate Culture Key to Avoid Regulatory Issues: While regulators’ inconsistency comes under scrutiny by survey respondents, this is not a failing to which financial services firms themselves are immune. Just under half (49%) of respondents said that corporate culture was the most important factor on governance to get right to avoid regulatory issues. When asked what skills they would look to hire into their compliance teams, the majority (38%) said technical knowledge of regulations, followed by 15% who cited leadership and team management skills.
Melis said: “If firms are truly to achieve a cultural change, it is hard to see how this can be achieved without such skills, particularly on the leadership front to drive change efforts.”
Rising costs: As the corpus of regulation increases, so too will the associated costs, according to the survey’s respondents. 85% expect regulations to increase their costs this year. Looking ahead, 20% expect them to have increased by 10% in five years’ time, with a further 28% expecting them to rise by between 4% and 10%.
Korek said that it is hard to reconcile the industry’s perceived lack of confidence in regulation when the majority of industry respondents expect regulatory compliance costs to increase over the next year. However, compliance spending is justified by the potential consequences and cost of failures, and firms should see it as an opportunity to proactively build a positive case for compliance. The compliance function can move from being seen as a cost center and “business prevention unit” to a “value generator”.
He added, however, that the industry and regulators must ensure that enforcement actions don’t simply become a fact of life, with the costs passed automatically to customers. “If this happens, the entire point of delivering penalties will be lost.”
For more information about Duff & Phelps’ Global Regulatory Outlook and Compliance and Regulatory Consulting expertise, and to download the full study, please visit www.duffandphelps.com.
About Duff & Phelps
Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, dispute and legal management consulting, M&A, restructuring, and compliance and regulatory consulting. The firm’s more than 2,000 employees serve a diverse range of clients from offices around the world. For more information, visit www.duffandphelps.com.
M&A advisory and capital raising services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory and capital raising services in the United Kingdom and Germany are provided by Duff & Phelps Securities Ltd., which is authorized and regulated by the Financial Conduct Authority.
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