Financial firms have seen the cost of compliance rise by more than 30 percent in the past three years to an estimated £28 billion in 2007, according to a new report by consultancy Deloitte.
But costs are yet to peak, and the governance and control bill for the world’s largest 100 financial firms could hit £50 billion by 2010, according to Deloitte. This does not include the cost of any new regulation introduced in response to the current credit crisis, the group said.
Financial services firms have seen a wave of regulation in the last few years, including Basel II and MiFID. Many have had to implement or upgrade technology systems for greater control over their risks.
A new report, titled ‘In Control?’, warned investment in regulation and compliance can only be fully effective if institutions connect their risk management and controls, and the governance of the two into what the advisory firm calls a ‘holy trinity’.
"It appears that a prime feature of the recent losses incurred by major banks in the credit crunch was the inability, in many instances, to link risk and control factors together," said Chris Gentle, associate partner and head of research at Deloitte. "Financial institutions are always seeking to find and sustain the correct balance between risk and reward, but this lack of triangulation between control, risk and governance is, in most cases, a missing link which needs joining up."
“Current market dynamics dictate that there are few more vital issues for financial institutions to address than risk appetite, governance and control. Such systems set few hearts racing until it is often too late, yet they are increasingly determining the winners and the losers across the global financial services industry," Gentle added.
“Governance and control systems need to be right at the top of the corporate agenda, as they are likely to play a central role in the individual success or failure of senior executives.”