The Costs of Compliance

OMNIO » The Costs of Compliance

To keep up with the rising tide of regulation, businesses frequently have no choice but to throw more people, time, and resources at the problem, which can quickly add up. In this article, we will discuss the rising costs of compliance and non-compliance for financial firms, as well as how OMNIO can help to reduce those costs.

The Costs of Compliance

How can the cost of compliance be calculated? One option is to look at the grand total for the industry’s key markets. Each year, the financial industry spends approximately $181 billion on financial crime compliance. That figure is impressive, if not incomprehensible, but it conceals the burden placed on each individual firm.

According to a Risk Management Association survey, 50% of respondents spend 6–10% of their revenue on compliance costs. For large corporations, the average cost of maintaining compliance is around $10,000 per employee. Global banks and large brokers with more than 20,000 employees could end up spending more than $200 million per year on compliance.

Since the 2008 global financial crisis, regulatory change has increased 500%, which has, predictably, increased regulatory costs. When compared to pre-crisis levels, retail and corporate banks’ compliance operating costs have increased by 60%.

Businesses are being forced to make best guesses based on fragmented and incomplete view of their regulatory environment, rather than make informed decisions. Whether intentional or unintentional, this frequently leads to compliance failures and raises the cost of noncompliance.

The Costs of Non–Compliance

The cost of non-compliance is most famously understood through the eye-watering fines issued by regulatory agencies each year. Since 2008, US banks alone have been fined a whopping $243 billion.

These fines are increasing at an alarming rate:

Between 2018 and 2019, global regulators imposed nearly $10 billion in fines on banks.
By the summer of 2020, these same regulators had already fined financial institutions $5.6 billion.

The Securities and Exchange Commission (SEC) alone issued 862 enforcement actions in 2019, ordering those who violated to pay a total of more than $4.3 billion.

However, fines are the smallest cost of noncompliance for businesses. The average fine for an enforcement action is $2 million over a 12-month period, compared to the average cost of business disruption due to an enforcement action of $5 million, the average revenue lost at $4 million, and the cost of lost productivity at $3.7 million.

Firms spend nearly $15 million on the consequences of noncompliance. That is 2.71 times more than what firms typically pay to maintain compliance by establishing strong compliance programs.

This difference, while significant, should not come as a surprise. After all, the system is intended to incentivize firms to comply or face severe penalties.

Here lies the compliance conundrum: How can firms expect to avoid the costly consequences of non-compliance in an environment where the pace and complexity of regulation are increasing to the point where people can no longer keep up?

Our Solution

Compliance management is simplified with OMNIO. It significantly reduces the risk of failure, resulting in less time spent on compliance and no additional costs for additional staff, external advisors, or regulatory fines. OMNIO is a multi-platform solution that detects suspicious activity, generates assessments, and recommends a course of action for your cases.

What makes us unique?

Without writing a single line of code, our unique rule engine allows each financial institution to integrate their compliance procedures into the system. With external data sources, we supplement both the detection of suspicious activity and the analyst’s investigation process. As a result, you’ll have a system that detects threats and generates a written report in the same way that your most experienced compliance officer would.

Our business model

Depending on the needs of our individual clients, we offer a variety of pricing plans. Because of our modularity, we can provide individual features of our software to meet the needs of our clients. Each feature has its own pricing dependent on how many customers the financial institution has, what the projected volume of checks that would be executed is, and how many compliance users the institution has.

The Costs of Compliance