The Compliance TsunamiTuesday, 4th March 2014

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ContentsA Tsunami – Really ?

Industry Background

Research Participants

Methodology

Findings

Conclusions

Questions

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Industry Background and Firms Interviewed

• Record years for the wealth management industry!• However, costs are increasing and some firms are

having particular difficulty

• £60 billion of investment assets, 3200 staff• CEOs and Heads of Compliance

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Methodology

• Comprehensive, 60 minute interviews

• Covering 5 main topics

• Governance

• Strategy and Daily Operations

• Compliance Costs

• The Front Office

• The IT Department and Compliance Technology

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Findings‘How would you rate the pace and volume of regulatory changes across 2012 and 2013?’

“All the regulation is acceptable in

my view. There’s too

much whinging going on.”

“All the regulation is acceptable in

my view. There’s too

much whinging going on.”

Very high High Normal Low Very low0%

10%

20%

30%

40%

50%

60%

70%

58%

33%

8%

0% 0%

Pe

rce

nta

ge

of

pa

rtic

ipa

nts

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‘How would you rate the task of dealing with the regulatory workload during 2012 and 2013?’

Very difficult Difficult About average Easy Very easy0%

5%

10%

15%

20%

25%

30%

35%33% 33%

25%

8%

0%

Pe

rce

nta

ge

of

pa

rtic

ipa

nts

“External help almost provides

us with reassurance,

but there has to be collaboration

so we can compare notes.”

“External help almost provides

us with reassurance,

but there has to be collaboration

so we can compare notes.”

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‘Have there been any material changes since the FSA split into the FCA and PRA?’

“They’re trying to understand our business model. The

FSA never did that.”

“They’re trying to understand our business model. The

FSA never did that.”

No Yes - increased engagement and focus

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

20%

80%

Pe

rce

nta

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of

pa

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ipa

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‘What difference, if any, have regulations introduced in the previous two years had on the way your business operates?’

Suitability

Scalability

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‘Do you have a defined compliance strategy in place and if so, can you describe it and its implementation?’

said, ‘no’

“…we don’t have a strategy that is documented.”

“…we don’t have a strategy that is documented.”

“Well, I suppose the strategy is to remain

compliant at all times.”

“Well, I suppose the strategy is to remain

compliant at all times.”

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‘For the compliance projects that take up most of your time, are you able to allocate what percentage of the work you would

consider to be good business practice?’

RDR Suitability35%

45%

55%

65%

75%

85%78%

83%

Av

era

ge

pe

rce

nt

of

tota

l wo

rk c

ite

d a

s g

oo

d

bu

sin

es

s p

rac

tic

e

“The FCA’s mantra is, ‘if

it’s not documented,

it doesn’t exist.’”

“The FCA’s mantra is, ‘if

it’s not documented,

it doesn’t exist.’”

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‘What are the main factors driving your compliance department costs?’

Business Growth The level of regulation Remuneration0%

10%

20%

30%

40%

50%

60%

70%

17%

58%

25%

Pe

rce

nta

ge

of

pa

rtic

ipa

nts

“Regulation! The sheer weight of it hitting our sector

is massive.”

“Regulation! The sheer weight of it hitting our sector

is massive.”

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‘How would you rate the level of your compliance department costs?’

Very dif-ficult

Difficult About average

Easy Very easy

0%

5%

10%

15%

20%

25%

30%

35%33% 33%

25%

8%

0%

Much too high High Acceptable Too low Much too low0%

10%

20%

30%

40%

50%

60%

70%

80%

8%

0%

75%

17%

0%

Pe

rce

nta

ge

of

pa

rtic

ipa

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‘How would you rate the task of dealing with the regulatory workload during 2012 and 2013?’

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• 1.8 front office professionals

• Generating £500,000 revenue

• Opportunity cost

= £900,000

‘To what extent do you feel the front office has been impacted by the regulatory environment?

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‘How easy is it for your IT department to keep pace with regulations introduced over the past two years (both in

terms of project and business-as-usual work)?’

found it ‘difficult’ or ‘challenging’

“Giving us six months notice is unacceptable – I.T. is a finite resource and there’s only so much we can ask

them to do.”

“Giving us six months notice is unacceptable – I.T. is a finite resource and there’s only so much we can ask

them to do.”

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‘Do you use specialist compliance software to help with the management of compliance and if so, what

advantages/disadvantages does it bring?’

had no specialist software

“There’s nothing out there to help with specific projects.”

“There’s nothing out there to help with specific projects.”

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“It’s pretty difficult to squeeze a risk warning into 140

characters.”

“It’s pretty difficult to squeeze a risk warning into 140

characters.”

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‘Is there a compliance ruling that you think ought to be introduced that does not already exist?’

• Level of individual’s compliance salary

• Behavioural regulation

• Super-clean share classes

• Total Expense Ratio

• Transparent Exit Charges

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Conclusions

• FCA off to a good start

• Belief in good business practice

• Adaptability of firms – positive attitude

• ...but the ‘tsunami’ is going nowhere