How Low-Tech Compliance Hits Competitiveness

Thomas Imhof Apiax Regulatory Engineer Zurich 29 March 2021

How Low-Tech Compliance Hits Competitiveness

It is becoming increasingly apparent how costly a low-tech approach to compliance management can be – and in many senses. Thomas Imhof, Regulatory Engineer at Apiax, explains how firms are turbocharging their competitiveness through cutting-edge regtech tools.

Those in the financial services sector will know that regulation comes at staggering costs. So much so, that it has been estimated that compliance eats up 6 to 10 per cent [i] of revenues for half of banks.

“Throwing people at the problem” is a time-honored means of coping with compliance complexity. Yet it is an increasingly unsustainable one, not least because the magnitude of change (and risk) has rightly elevated the status and therefore compensation of compliance professionals. In developed markets, even entry-level compliance managers can command annual salaries touching $110,000 [ii]. Such is demand, that experts can expect a leap of 8 per cent for accepting a new role [iii].

The bottom line is also hit hard in more hidden ways, particularly when firms are maintaining compliance across multiple jurisdictions. A low-tech approach invariably means too much of the burden is borne by client-facing and investment management personnel, with them having to attend compliance training and interpreting internal policies and manuals. This time could clearly be spent in far more profitable ways.

Even more under appreciated, and arguably most damaging of all, is how much compliance complexity constrains the competitiveness of institutions on the world stage - and by extension their client advisors.

Rich seams unmined 
Our Staying compliant across borders study makes this crystal clear. In a global world with increasingly mobile clients, cross-border compliance is an almost universal concern, and obviously even more so for serious players in the wealth management space. Of the 43 major financial institutions we surveyed, 93 per cent provide services and products in multiple countries; 51 per cent are dealing with over 20.

But these seemingly buccaneering figures obscure what we see as a real limitation (or perhaps more accurately self-limitation) of firms’ ambitions. Although 55 per cent of firms actively market their cross-border services, only 45 per cent offer them passively. Strikingly, over a third (36 per cent) of the most globalized firms offer all their cross-border services only on a reverse-solicitation basis. Rich seams are being left unmined.

You might say that client-centric firms will do their utmost to deliver if asked. Otherwise, they may often conclude that actively pursuing certain services and cross-border products is more trouble than it is worth. We know that rising complexity frequently deters institutions from pursuing lucrative markets. It also involves agonizing decisions to pull out of them.

Endless puzzling   
As compliance management practises currently stand, it is easy to see why.

Over a third of firms admit that they struggle to provide clear dos and don’ts, leaving many to simply “puzzle it out” from reams of internal and external resources. Worse, and quite incredibly for the year 2021, client advisors at three-quarters of firms are still having to pore over paper-based cross-border manuals to know what they can offer.

Burying advisors in a veritable library of books (or PDFs, which are little better) when they should be nurturing client relationships is clearly a misuse of their very expensive time. You could certainly say the same for the 40 per cent of investment teams who have to monitor country-specific restrictions at the investment product level.

Clearly, few areas of the business will be untouched by the constant challenge of unpicking interlinkages between an entity's license framework, regulatory requirements and country-specific offering exemptions. Compliance training, monitoring, maintaining cross-border manuals and the approval processes for advisors’ (hopefully soon to be reinstated) travels are absolutely in the fray. So too are marketing and all the other business activities impacted by country-specific regulations, for which read virtually all.

Neither easy nor cheap  
What’s more, sourcing the information in the first place isn’t necessarily easy or cheap. To this day, nine in 10 firms are updating their cross-border compliance knowledge via traditional methods like memos, emails and calls and, very likely adding to expenses. Fifty three per cent of firms source legal information via external law firms, and 19 per cent obtain legal opinions from consultancies.

When compliance information is so diffuse and disconnected, it comes as no surprise that a substantial proportion of institutions have still not integrated regulatory restrictions into their key processes at all. What we have, then, is a situation whereby rules are being learned and relearned time and again, up and down the various business departments.

Our vision is diametrically opposed to this mode of compliance “management”. It digitizes knowledge, placing a rules repository at the centre of the organization which allows everyone who needs to consume the information to access and work on it in a context-specific way.

Just as importantly, our approach allows the organization – and its personnel - to consume that information in exactly the way that suits, whether that be through a compliance platform, an app or APIs to existing systems. Whatever their function, busy professionals are typically crying out for a single answer to be surfaced from scores of intersecting rules: this is exactly what Apiax empowers firms to provide.

A rules-creation engine   
This empowerment is certainly about generating standardized and repeatable processes for embedding rules into complex, multi-jurisdictional organizations, fast. The regulatory onslaught shows no sign of slowing down, and interpretation not administration is where experts should be focused. Even more revolutionary is how our technology empowers the experts to disseminate what everyone needs to know without having to constantly call on IT resources (or almost having to become coders themselves!).

It would be accurate to call our solution a rules-creation engine for non-developers. More poetically, you could say it is software designed for compliance specialists, by compliance specialists, which allows them (and everyone else) to get on with their most valuable work.

We are proud to say that the industry asked, and Apiax answered, setting off a trend that will make much of the pains of compliance management completely fall away for great swathes of the industry. Not before time, an abandonment of the low-tech approach is already taking hold.

Enthusiasm becoming investment   
As might be expected, virtually all of our respondents see the advent of digital tools for ensuring cross-border compliance as an important development. Those with an eye on the competition should know that this enthusiasm is definitely translating into investment plans too.

Our study shows that 9 per cent already have a digital rule aggregation solution in place to tackle multi-jurisdictional scenarios. Many of the remainder will be catching up fast. Over the next year, a full 31 per cent aim to fully integrate digital regulatory restrictions into their workflows and at a quarter of firms, client advisors can look forward to easy-access digital rules, which will likely be available through an app. Constant calls to compliance professionals and asking staff to thumb through weighty compliance tomes is now starting to look very passé indeed. We see compliance frameworks evolving from policy, training and personal advice-based approaches to empowering employees via digital rules integrated into the business processes of a financial institution.

Our research confirms that a gulf is opening up between the leaders and the laggards in compliance management. The implications for operational efficiency, risk management and talent retention are plain to see, as is their impact on profitability.

However, the broader improvement that we hope to see is an end to firms self-limiting their potential because the compliance burden makes them fear opening themselves up to certain products, services or even whole markets. Regulation has driven risk-aversion and dampened competitiveness for far too long. Firms need to see tech-enabled coping mechanisms as a real competitive advantage instead.

For more information, visit

This is a chapter from the 2021 edition of Technology Traps Wealth Managers Must Avoid. Click here to download your free copy. 

[i] Risk Management Association
[ii] Robert Half
[iii] Compliance Professionals Salary Guide – August 2020

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