Why UK compliance teams are currently spending more on resource than on technology

Compliance departmental spend has seen an enormous surge over the last few months for UK firms who are struggling to keep-pace with the ever-changing regulatory landscape.

Of this increasing overall spend, more and more firms are putting the weight of their budgets towards people-based resource as opposed to technology, and for very good reason.

As in house teams fight to cope with the regulatory demand placed on their compliance functions, what are the changes that have led to these increases? And why now, more than ever, are the right people the most important spend for all compliance teams?

Regulation is the key driver behind compliance resource spend in the UK

Simply put, more and more compliance department-heads and decision makers are increasing their spend due to tougher regulatory requirements. A recent report released by LexisNexis, suggests that this alone accounts for more spend in compliance divisions than in other measures against criminal threat.

The report also suggested that £28.7bn annually is being spent by compliance departments in the fight against financial crime, and this is set to rise to £30bn by 2023. Of that overall spend, a sizeable 70% of the budget is likely to be committed to boosting expertise within business compliance functions.

It is estimated that the implementation of process and resource dedicated to the 5AMLD regulations alone will cost UK compliance teams on average around £750,000.[1]

With the Financial Services Bill in play as well, compliance teams will have to adhere to stricter norms which means more changes for compliance teams and additional pressures of regulatory implications if not all updates are completed on-time and in accordance with regulatory guidance.

According to International Investment, financial institutions also expect that BREXIT will invariably result in more regulation in the months and years to come, which will create higher compliance departmental and resource costs over time.

UK regulators have also stated that more reliance is needed in compliance controls and functions, suggesting that ‘purposeful AML systems’ be developed.

So, what is purposeful AML?

There is increasingly a mounting pressure from the regulator to ensure that AML systems are built purposefully. Mark Steward, the FCA’s Executive Director of Enforcement and Market Oversight stated that firms must have “purposeful” AML systems and controls.

This means that firm’s systems and controls will need to be “meaningful” in the sense that they are able to mitigate new AML risks. It is a sign that UK businesses AML systems need to be more resilient and need to be built around new regulations, risk, and controls.

Regulators feel that firms’ existing AML systems and controls (including those in relation to which shortcomings have already been identified by the FCA) do not all share the same purpose to mitigate current and new risk, meaning that current AML systems may not be as purposeful as they should be.

Some of the biggest existing challenges in compliance teams are a combination of data quality, gaps in IT infrastructure, ineffective internal tools, system failures and outdated technologies.

All these areas will, crucially, require the correct personnel to oversee their review, enhancement, and ongoing effective implementation and/or updates in the future.

How has the pandemic influenced compliance spend?

One of the biggest areas of spend for compliance teams caused by the COVID-19 pandemic has been in the onboarding of new customers, which as accounted for 53% of compliance budget spend in the UK over the past 12-months.

With enhanced customer due diligence checks, remote ID and verification checks, and risk assessment checks being conducted during lockdown, compliance teams have had to spend additional budget on outsourcing these highly necessary services, with resource requirements compounded by a surge in demand brought about by the COVID outbreak.

This has been especially true in relation to government backed COVID loans that have been issued, whilst further additional resource has also been needed so that compliance teams could simply continue to manage and maintain BAU.

Fundamentally, people are still just as important as technology

The right people remain a vitally key component in your compliance function to ensure regulatory changes, challenges and priorities are both met and adhered to.

What is needed, now more than ever, is a combination of a people plus technology solution. Automation of your current AML processes and systems can only take you so far – they need to be purposeful, and the right people will very much be needed to achieve this.

Technology automation can of course help with repetitive and relatively mundane tasks, but people can and must oversee automation, as well as ensuring that informed and accurate decisions are being made.

If your business has been impacted by additional regulatory or compliance pressures during the pandemic and needs additional contingent staffing support in your compliance departments, speak to us to see how we can help in supplying experienced and effective additional members to your team.


Works cited:
[1] Finextra Research. (2021). AML regulations driving up compliance costs across UK. [online] Available at: https://www.finextra.com/newsarticle/38299/aml-regulations-driving-up-compliance-costs-across-uk [Accessed 23 Jun. 2021].