Do you think the cost of compliance in the financial services industry is in danger of outweighing the benefits?

Let’s remember that bad things can happen with too little regulation. To protect our financial systems, we want the right amount of legislation and regulatory guidance. The key is to install a useful number of traffic lights to let traffic flow smoothly, but not too many to grind traffic to a halt and not too few which may cause chaos.

While not everyone is a proponent of new rules to follow, when it is a well-crafted and arguably necessary piece of legislation it lends stability and credibility to the jurisdiction. It does not need to be long or especially onerous, it purely needs to be effective.

However, it feels like the right time to step back and ask ourselves – Are we achieving the most ideal regulatory balance?

Costs of compliance are seemingly ever-increasing. While each obligation may appear worthwhile when inspected individually, that is not the point, it is the method of integration into existing programs that is just as essential if they are to be effective. Otherwise you may drive reporting entities to solely meet the technical compliance requirements, and not achieve the principles and objectives.

Regulators are conducting rigorous inspections and issuing mind-numbing penalties for cases of non-compliance world-wide. Institutions now have to work their way through a complex web of legislation and regulatory guidelines – which feels like you need a specialized engineering degree to navigate through the instructions and be able to build on.

Isn’t it high time for legislative and regulatory bodies to step back and peel the onion open to look at the objectives, existing rules and current practices and make a much needed move forward employing a more harmonized approach?

What more commonly happens is when a new regulatory agency comes on board, a major financial services company fails, an eager politician tries to leave their mark or we experience economic turmoil – it leads to new regulations. Yes, net new regulations and not necessarily revisions to existing ones. This creates a pile on effect. While some may be an altruistic attempt to bolster existing regulatory platforms which aim to sustain healthy financial centres – if the new rules are not done in unison with existing obligations, they have the potential to become a hindrance to doing good business.

Imagine a world where we all lived together in regulatory harmony

Picture this. We create a standard list of client identity documents required for all new applicants seeking a financial services product.

I mean world-wide to be clear; that is just one standard list. Everyone follows the same list. Can you see it?

Would this not reduce instances of inconsistent service and alleviate customer frustration? Would it not ease the hours spent doing the old tug-of-war between those trying to onboard a new client and the compliance approver?

If you are a financial services company operating in multiple jurisdictions, you currently need a mammoth chart and a good pair of reading glasses to track the growing inventory of regulatory requirements in each location and map your processes to each one to determine if you have a gap. Does that sound like fun or an effective use of resources? No. I would rather have my compliance managers monitoring imminent risks and participating in brainstorming meetings to develop new products and services in a compliant fashion.

If we continue down the current path, yes, we are at risk of making the costs of compliance even more difficult to manage.

About the Author

Glenna Smith -

Glenna Smith is Managing Director of Smith Compliance Consulting (SCC) Inc. in Barbados as well as a Certified Anti-Money Laundering Specialist and the Vice-President of the Barbados Association of Compliance Professionals. Glenna is a member of the world wide AML Training faculty for a Global Bank to facilitate interactive training sessions for staff and the importance of fighting financial crime. Glenna has worked as a Compliance Officer facing regulators and managing inspections. She has gained wide and in-depth knowledge in compliance, operational risk, corporate governance and legislative matters over 28 years in the financial services sector. Glenna has authored a number of articles on AML, Governance, FATCA and Privacy and speaks regularly at conferences regionally and internationally.