Compliance s Seat at the Table Hard to Earn, Hard to Retain. Accenture 2014 Compliance Risk Study

Transcription

1 Compliance s Seat at the Table Hard to Earn, Hard to Retain Accenture 2014 Compliance Risk Study

2 New research from Accenture confirms that compliance risk management in the banking and capital markets sectors has grown in size and stature in the wake of recent industry events. The key concern now is whether such growing importance has achieved the required shift in behaviors and whether compliance programs can sustain the investment required to maintain their seat at the table and become a true strategic business partner. Accenture s 2014 Compliance Risk Study based on surveys with compliance officers at 100 banking and capital markets firms across Europe and North America indicates that compliance risk management is at a critical juncture in its evolution toward a control function that is relevant and can establish long term stature and respect within financial service organizations. Five key themes emerged from our study, including 1 : 1. The size and shape of compliance programs continue to evolve. Compliance has made significant progress in increasing its stature and role within the organization. A majority of compliance programs now report directly to the Board or the Chief Executive Officer (CEO), but there remain challenges in driving influence as strategy and processes are still relatively immature. 2. Further investment in compliance is needed to achieve strategic goals. Investment in compliance shows no sign of slowing, with firms in Europe and North America both viewing analytics and risk modeling as a focus for current investment to help predict and mitigate future compliance events. 3. The competition for talent has become a barrier to success. Securing sufficient compliance talent will be key to addressing sources of financial and reputational damage to an organization. Firms need to re-think identification, recruitment and, especially, retention of talent in a fiercely competitive market environment. 4. With a perfect storm brewing in compliance, firms need to demonstrate effectiveness and think beyond traditional solutions. As they confront both a growing need to invest and a scarcity of talent, firms need to re-think their growth plan so they can help ensure long term sustainability, help maximize human capital and demonstrate their success. 5. The horizon is continually moving, and compliance programs are already setting priorities for the future of their compliance function. Proactive, strategic planning by compliance programs will be critical to building and maintaining competitive advantage. In addition, programs need to adopt a global mindset that reflects local priorities as they plan for the skills and technology required to sustain their development. 1

3 DETAILED FINDINGS FROM THE ACCENTURE 2014 COMPLIANCE RISK STUDY 1. The size and shape of compliance programs continue to evolve. The proportion of compliance programs reporting to the Board or the CEO is a key indicator of compliance s stature as a control function that can escalate effectively and ensure accountability for actions. As seen in Figure 1 below, nearly one-third (31 percent) of respondents state their compliance programs report to the Board, with another 40 percent reporting to the CEO. The growth in stature is considerable given that just over five years ago 70 percent of respondents compliance programs had not yet been formally chartered. A key next step for compliance is to gain the stature and authority to influence appropriate behaviors across the organization including responses to mandates from senior management or regulators where required. This may not be easy to accomplish, as 60 percent of respondents still see a need for improvement in establishing a culture of compliance in their firms while 65 percent of respondents feel that they needed to improve their response to and relationship with regulators. Compliance programs are therefore at an important inflection point in delivering on their rising status within the organization. The Wall Street Journal has noted that while a greater number of compliance leaders are reporting to their chief executive, there remain challenges ahead for programs as their new-found stature is embedded within the firm 2. The stakes for compliance s role in firms decisionmaking have been raised, and programs need to respond accordingly. FIGURE 1. COMPLIANCE REPORTING LINES WHICH OF THE FOLLOWING BEST DESCRIBES THE COMPLIANCE FUNCTION S REPORTING LINES? GLOBAL NORTH AMERICA EUROPE 8% 10% 6% 21% 40% 34% 16% 26% 46% 32% 31% 30% DIRECTLY REPORTING TO THE CEO Base Size = Total Sample (n=100), where NA=50 and Europe=50 Source: Accenture, March 2014 DIRECTLY REPORTING TO THE BOARD OF DIRECTORS REPORTING TO HEAD OF LEGAL WHO REPORTS TO THE CEO REPORTING TO HEAD OF ANY OTHER FUNCTION WHO REPORTS TO THE CEO 2

4 2. Further investment in compliance is needed to achieve strategic goals. Given the relative maturity of compliance programs, it is perhaps not surprising that further work is required to maintain and build upon compliance programs achievements to date. Respondents in Europe and North America generally agree on the key success factors for an effective compliance program. These include the ability of programs to draw lessons from peers and industries with more advanced risk management capabilities; identified by 88 percent of respondents from Europe and 94 percent of respondents from North America as a key to success. Achieving this success comes at a price, and findings from the study indicate that investment in compliance programs is set to continue to rise. As seen in Figure 2, respondents were more certain than they were in 2012 that investment in compliance programs would increase, with a majority of respondents expecting spend to grow by 10 to 20 percent or more over the next two years. Goldman Sachs, for example, recently announced that its compliance and regulatory costs had more than doubled from $444 million to $962 million from 2012 to Key areas of investment were expected to include analytics and risk modeling, which aligns with the industry s growing interest in trend analysis across both structured and unstructured data to help predict and mitigate compliance events. Such focus on data analysis is also in line with the concerns of a majority of respondents around their firms performance in data intensive disciplines such as management reporting and issue management. FIGURE 2. COMPLIANCE INVESTMENT EXPECTATIONS OVER THE NEXT TWO YEARS, HOW DOES YOUR ORGANIZATION EXPECT INVESTMENTS IN THE COMPLIANCE PROGRAM TO CHANGE? 92% 86% 80% 64% 36% 35% 37% 18% 30% 33% 27% 27% 20% 24% 19% 16% ANY INCREASE INCREASE GREATER THAN 20% INCREASE BETWEEN 10 TO 19.9% INCREASE BELOW 10% Excludes: Don t know Base Size = Total Sample (n=100), where NA=50 and Europe=50 Source: Accenture, March 2014 GLOBAL 2012 GLOBAL 2014 NORTH AMERICA EUROPE 3

5 3. The competition for talent has become a barrier to success. The need for investment in compliance talent is key to sustaining the required growth of the compliance function and addressing sources of financial and reputational damage to an organization. Over a third (34 percent) of survey respondents are currently trying to expand headcount, while an additional 46 percent are planning such increases. A failure to attract and retain talent in a fiercely competitive environment can be a barrier to success for the compliance program. There are also additional side effects of such competition for a limited talent pool. Undoubtedly the forces of demand and supply have raised recruitment costs, as can be seen in Figure 3, where over half (53 percent) of firms are now engaging in competitive hiring. Furthermore, while a large majority (85 percent) of respondents indicated that integration of hires is generally successful, industry commentary regarding high attrition would suggest that firms need to redouble their efforts to secure and retain the right talent. Respondents highlighted a number of other tools beyond pay that their firms are beginning to utilize to encourage compliance risk management professionals to make longer-term investments in their institutions. Over a quarter of respondents in North America are providing rotational programs within compliance, which may include work across multiple disciplines and even international mobility. This is less prevalent in Europe, though globally half of respondents are investing in structured training courses that can skill up compliance professionals and support a differentiated career path for compliance professionals. These factors show some firms are moving towards more of a total rewards approach that Accenture has seen adopted at high-performance investment banks 4. FIGURE 3. COMPLIANCE RECRUITMENT HOW IS YOUR ORGANIZATION ADDRESSING EMPLOYEE SKILL GAPS IN THE COMPLIANCE FUNCTION? 58% 53% 47% 49% 44% 55% 34% 36% 32% 26% 21% 15% 8% 8% 9% 6% 6% 6% COMPETITIVELY HIRING THROUGH PROFESSIONAL RECRUITING AND HEAD-HUNTING FIRMS GRASS ROOTS HIRING THROUGH REFERRALS OR OTHER STANDARD POSTING / RECRUITING CHANNELS CAMPUS RECRUITING ROTATIONAL PROGRAMS THROUGH MULTIPLE AREAS OF COMPLIANCE NO SKILL GAPS TO ADDRESS CURRENTLY NOT ADDRESSING SKILL GAPS Excludes: Don t know Base Size = Total Sample (n=100), where NA=50 and Europe=50 Source: Accenture, March 2014 GLOBAL NORTH AMERICA EUROPE 4

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7 4. With a perfect storm brewing in compliance, firms need to demonstrate effectiveness and think beyond traditional solutions. With surveyed firms agreeing both that more investment in compliance needs to be made and that there is a challenge attracting and retaining talent, it seems a perfect storm is brewing. Responses to our survey, as highlighted in Figure 4, indicate that firms have an initial view of the performance improvements required to help navigate these headwinds. There is general agreement on the areas for improvement across geographies, albeit with Europe highlighting more acute challenges around the placement of the right compliance skills and in the categorization of compliance risk. Throughout such turbulence it will be paramount for compliance programs to demonstrate the success of their investments in navigating these challenges to senior managers who are keen to see returns on investment. Firms admit that they have had mixed results in their ability to manage change effectively and illustrate the performance of their compliance program. As Figure 5 highlights, the majority of respondents agreed that the measures they use are not the most effective measures to illustrate an effective compliance program. Further work is needed to better communicate the effectiveness of their programs, but this is still low on the investment priorities with only 37 percent of respondents investing in performance measurement today. Industry experience of the maturing of other control functions indicates that spend on performance measurement should continue to rise in compliance s list of priorities. Study responses suggest this will happen within compliance programs before long as an additional 51 percent of respondents report their firms are assessing future investment in this area. FIGURE 4. AREAS OF PERFORMANCE IMPROVEMENT HOW IS YOUR ORGANIZATION PERFORMING ON THE FOLLOWING ASPECTS OF COMPLIANCE RISK? Top 2 Box Scores (Significant + Some Improvement Required) GLOBAL NORTH AMERICA EUROPE Reducing the cost of compliance for the financial institution 71% 73% 68% Cooperation between compliance functions and other sources of governance and control (e.g., risk management or internal audit) 67% 61% 73% Proactively building relationships with regulators 65% Compliance risk categorization 63% 59% 50% 71% 76% Creating a common inventory of regulatory changes across key regulations to arrive at impact across dimensions such as people, process, and technology 63% 53% 72% Internal and external management reporting 62% Influencing regulators rule-making process 61% Dealing with compliance breaches 61% Setting limits on compliance risk and managing it 61% Implementing controls 61% Culture of compliance throughout the business 60% Testing (quality assurance, quality control and compliance) 60% Compliance training and communications 60% Root cause analysis and tracking 59% Risk assessment 58% Delivery of compliance change projects within the compliance program 58% Monitoring 56% Issue management 56% Ensuring that the right skills and expertise are in place to manage compliance effectively 53% 65% 55% 59% 57% 53% 55% 55% 54% 51% 52% 50% 56% 51% 40% 58% 67% 63% 64% 68% 65% 65% 66% 66% 63% 65% 55% 60% 67% Excludes: Don t know Base Size = Total Sample (n=100), where NA=50 and Europe=50 Source: Accenture, March

8 While performance measurement is an important principle in navigating the challenges ahead, firms will also need to think beyond traditional solutions in formulating an approach to growth that is sustainable, addresses senior management expectations and concerns around the cost of compliance, and also maximizes human capital. Our 2014 Compliance Risk Study confirms firms are at varying stages in their consideration of alternative approaches to traditional staffing and management of the compliance function. Two examples of alternate approaches, shared services and outsourcing are seen as two key levers that can help define a more rationalized and sustainable structure for the compliance program. Shared services: A number of surveyed firms are assessing the level to which compliance utilities can deliver controls across multiple lines of business. Almost all (93 percent) of respondents have a bank-wide team setting standards for line of business compliance. A shared organizational construct can provide a more varied workforce that can deliver critical skills as needed by a compliance program. Outsourcing: Over half (54 percent) of Accenture 2014 Compliance Risk Study respondents have outsourced some or all of their compliance program to a third party, with over half citing efficiencies as the key driver of the decision. However, such approaches are not without challenge and are still in the early stages of development. Barriers to success that would need to be overcome to make these evolutions successful include regulatory concerns, identified by 49 percent of respondents as influencing such a decision. In our view, the results indicate that regulatory engagement on this matter is still at a relatively early stage. FIGURE 5. COMPLIANCE PERFORMANCE MEASURES WHICH OF THE FOLLOWING FACTORS/INDICATORS ARE BEST USED TO MEASURE THE EFFECTIVENESS OF THE COMPLIANCE FUNCTION AND WHICH FACTORS ARE CURRENTLY USED IN YOUR ORGANIZATION? GLOBAL Base Size = Total Sample (n=100) 50% 42% 41% 43% 43% 44% 44% 45% 45% 46% 46% 47% 47% 38% 38% 37% 34% 39% 28% 30% 31% 27% 32% 38% 35% 34% 28% 35% 32% 34% OVERALL COMPLIANCE COSTS PERCENTAGE OF COMPLIANCE DEVIATIONS RISK-ADJUSTED PROFITABILITY LOWER CAPITAL REQUIREMENTS SELF-IDENTIFIED COMPLIANCE / AUDIT ISSUES REGULATORY AUDIT FINDINGS IMPROVED SHAREHOLDER VALUE CONTINUITY AS A GOING CONCERN TIMELINESS, COMPLETENESS, AND ACCURACY OF REGULATORY FILINGS COMPLIANCE RISK MEASURES RESULTS OF REGULATORY EXAMINATIONS EFFECTIVENESS OF CAPITAL ALLOCATION REGULATORY FINES AND PENALTIES INCURRED INTERNAL / EXTERNAL AUDIT FINDINGS QUANTUM OF LOSSES AVOIDED - OTHER THAN REGULATORY FINES AND PENALTIES Excludes: Don t know Source: Accenture, March 2014 BEST METRICS METRICS USED 7

9 5. The horizon is continually moving, and compliance programs are already setting priorities for the future of their compliance function. Despite the relative youth of compliance programs across a majority of respondents, there is a clear sense that compliance leaders need to continue to evolve their programs in response to the ever-changing expectations of regulators and senior management. Moving towards Compliance Risk Management 2.0 is fundamental in this evolution, and compliance functions are already setting priorities. The 2.0 model demands a shift beyond the mindset of doing the minimum to comply with regulation, which is still a factor for over 80 percent of survey respondents. Programs are already forecasting the drivers of future change and the skills required to achieve this. Key priorities for the future compliance programs (as indicated in Figure 6) in both Europe and North America look set to include the management of regulatory change, model validation, and management reporting. However, there is some variation in demands across geographies. This local sensitivity will need to be reflected as part of a more global mindset for compliance programs to adopt as they plan for the skills, capabilities and technology required to sustain their development. FIGURE 6. DEMAND DRIVERS FOR COMPLIANCE RESOURCES WHAT ASPECT OF COMPLIANCE RISK MANAGEMENT WILL DRIVE THE GREATEST DEMAND FOR INCREASED COMPLIANCE RESOURCES IN THE COMING YEARS? 36% 29% 22% 23% 24% 22% 19% 26% 12% 18% 16% 16% 14% 13% 10% MONITORING AND MAINTENANCE OF COMPLIANCE RISK WITHIN ACCEPTABLE LEVELS BUILDING OF COMPLIANCE RISK MANAGEMENT MODELS AND THEIR PERIODIC VALIDATION ADDRESSING THE IMPACT OF THE CHANGING REGULATORY ENVIRONMENT REPORTING OF COMPLIANCE RISK IMPLEMENTATION OF COMPLIANCE RISK MANAGEMENT MODELS ACROSS BUSINESS LINES Base Size = Total Sample (n=100), where NA=50 and Europe=50 Source: Accenture, March 2014 GLOBAL NORTH AMERICA EUROPE 8

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11 CONCLUSION As the survey data indicates, compliance programs within banking and capital markets firms are at a key inflection point in their development. Their role and stature have increased, but with this comes greater scrutiny to evidence their value to the business, their success to the regulators and their ability to achieve results in an efficient manner. As the size and shape of compliance programs continue to evolve, there may be further headwinds as firms have to address concerns about their culture, behavior and operations, while also positioning themselves to handle the ever-changing requirements of compliance risk management and the size of investment required to meet them. How firms respond to this challenge will be critical in whether they maintain their seat at the table and become a true strategic business partner. Firms that are proactive in setting their investment priorities, considering innovative solutions, reviewing their talent agenda and evaluating their performance may be able to establish a competitive advantage. 10

12 About the Research Accenture fielded surveys in February 2012 and December 2013 that explored the state of compliance in banks and capital markets firms in Europe and North America. Respondents were predominantly those responsible for their company s compliance management function, and 43 percent of them had staffs of 300 or more people. Download the full report at Notes 1 Compliance s Seat at the Table Hard to Earn, Hard to Retain - Accenture 2014 Compliance Risk Study, March Accessed at: 2 More Compliance Chiefs Get Direct Line to Boss, Gregory L. Millan and Ben Di Pietro, Wall Street Journal, January 15, Accessed at: On the Call: Goldman Sachs CFO on compliance, pay, Yahoo Finance, January 16, Accessed at: yahoo.com/news/call-goldman-sachs-cfocompliance html 4 Top Ten Challenges for Investment Banks 2014, Accenture Accessed at: challenges-2014/pages/introduction.aspx About the Authors Samantha Regan is a managing director in Accenture s Finance & Risk Services. She has 17 years of global experience in banking and capital markets gained within industry and consulting. Samantha specializes in regulation and compliance and has been deeply involved in developing Accenture s regulatory and compliance management capabilities. She is the Global Regulatory & Compliance lead for Accenture s Finance & Risk Services practice. samantha.regan@accenture.com Ben Shorten is a manager in Accenture s Strategy practice, based in New York City. He has over six years of experience partnering with Tier I investment banks and leading retail banking institutions in both the UK and the US. Ben specializes in strategy definition and operating model design in response to government and regulatory mandate to change. benjamin.j.shorten@accenture.com About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 281,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, Its home page is Disclaimer This document is intended for general informational purposes only, does not take into account the reader s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, all liability for the accuracy and completeness of the information in this document and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professional. Copyright 2014 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture