Compliance functions make a turn towards innovation-fueled strategies

Faced with growing threats of ‘industry shocks’ such as cyber fraud, cryptocurrency, quantum computing and open banking, financial institutions expect to increase their compliance investments over the next two years as they seek new approaches to strengthening compliance capabilities, according to a new report from Accenture.

innovation-fueled strategies

Compliance investments increase

Based on a survey of 150 compliance executives at financial services institutions, Accenture’s fifth annual compliance risk report, “Comply and Demand,” found that 89 percent of respondents said they expect to increase their compliance investments over the next two years.

The study revealed that the top spending priority for compliance officers over the next 12 months is technology transformation, cited by 24 percent of respondents. Investments will be led with the implementation of new surveillance tools, with 49 percent of respondents planning to deploy these technologies this year.

“Time has run out for compliance departments that want to take a more watchful, cautious stance toward innovation. Industry shocks are becoming more commonplace in this increasingly volatile risk environment, and the creation of annual plans driven by once-a-year risk assessments is no longer an effective compliance roadmap,” said Steve Culp, a senior managing director at Accenture and global head of the company’s Finance & Risk practice. “As financial institutions manage more digital threats and an evolving regulatory landscape, they must act quickly and embrace a new mindset driven by innovation across technology, talent and operating models.”

Technology investments ROI

The report notes that to ensure returns on technology investments, companies will need to evolve the skillsets of their compliance employees, as 76 percent of respondents acknowledged a skills gap between their group’s current compliance skills and those required to apply insights through data and analytics and to drive technology innovation. Having access to the right data to identify risks will be another key component, as one-third of respondents (31 percent) cited data quality issues as a significant barrier for transforming the compliance function over the next three years.

“Compliance departments are finally taking steps to adopt new technologies, but strategic investments in enterprise-wide regulatory technology and intelligent automation must be complemented by the right talent mix,” said Samantha Regan, global co-lead for the regulatory remediation & compliance transformation group within Accenture’s Finance & Risk practice. “If compliance professionals don’t understand the ecosystem of risks they face or fail to obtain strategic insights from the data gathered, they can expect limited returns on their investments.”

innovation-fueled strategies

Top compliance risks

When asked to rank the top three compliance risks that will be the most challenging to manage within the next year, respondents most often cited cyber risk (21 percent of respondents). Cyber risk was also the most challenging to manage three years out. Interestingly, data and information risk and privacy risk were among the top three most challenging risks to manage within the next year and three years. This suggests that the General Data Protection Regulation could be putting a much-needed focus on the importance of customers’ data privacy and security.

The percentage of respondents who cited conduct and culture risk as a top-three concern dropped noticeably, from 27 percent in last year’s survey to only 7 percent this year, while only 14 percent cited product risk as a top-three concern this year. Given the ongoing incidence of corporate misconduct, mostly related to mis-selling and unethical behavior, and the proliferation of virtual currencies, these findings could indicate that the compliance function is losing sight of key risks and less prepared to respond proactively.

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Compliance functions make a turn towards innovation-fueled strategies