The Not So Hidden Costs of Compliance | Ascent

(5 min read)

How can one calculate the cost of compliance?

One option, perhaps the most straightforward, is to look at the grand sum total for the industry. $270 billion is the amount per year that the financial industry as a whole spends on maintaining compliance. That number is impressively large, if also almost incomprehensible, but it hides the burden placed on each individual firm.

The average cost of compliance per employee is approximately $10,000. That means that larger institutions (e.g., global banks, large brokers, etc.) with 20,000+ employees are potentially looking at a staggering $200 million in compliance costs per year. Smaller firms like RIAs and broker-dealers may spend less overall, but the regulatory burden can act like a regressive tax, disproportionately eating a larger portion of their bottom line.

Even these numbers, though, only show a static snapshot. They fail to capture the acceleration of regulatory complexity, which has exploded over the last decade. The pace of regulatory updates has increased 500% since the global financial crisis and, unsurprisingly, has heightened regulatory costs in the process. Compared to pre-crisis levels, retail and corporate banks have seen operating costs spent on compliance shoot up 60%.

There is certainly a disconnect, though, between 500% and 60%. Some of this can be accounted for by increased efficiencies within teams — made possible, in part, by leveraging technology — but it also speaks to another risk financial firms face: the cost of non-compliance.

Regulatory change has reached such a superhuman pace that many firms simply cannot keep up. Instead of making informed decisions based on a comprehensive view of the regulatory landscape, Risk and Compliance teams are too often forced to make a best guess according to a fragmented view of the regulatory environment. And, even if unintentionally, this often leads to compliance failures.

The cost of non-compliance is most notoriously understood via the jaw-dropping fines that accompany enforcement actions. These too can be measured by one staggering grand sum: $243 billion. That’s the amount that U.S. banks have been fined since 2008. 

The pace of these fines shows no signs of slowing down. In 2019, the FCA levied its largest personal fine ever and the SEC published a whopping 2,754 enforcement actions, including 95 against public companies — the highest number in a decade.

But fines actually represent the smallest cost of non-compliance for firms. Over a 12-month period, the average fine for an enforcement action is $2 million, compared to the average cost of business disruption due to an enforcement action at $5 million, the average revenue lost at $4 million, and the cost of lost productivity at $3.7 million.

That totals to an average non-compliance cost of almost $15 million. That’s 2.71 times higher than the average cost of complying, at $5.47 million.

This difference, while dramatic, shouldn’t be surprising. After all, the system is designed to incentivize firms to comply. But in an environment where, due to the pace and complexity of regulatory change, some firms simply cannot afford to comply, other solutions are needed.

This is where advances in regulatory technology, or RegTech, can help.

READ ARTICLE: What is RegTech and Why Does it Matter?


RegTech as a Cost-Cutting Opportunity

The leaps and bounds of artificial intelligence in recent years have made it possible to automate a number of compliance processes, including regulatory change management and regulatory mapping — processes that have historically been time-intensive, highly manual, and error prone. 

By doing so, RegTech solutions can significantly reduce the cost of compliance — and the risk of non-compliance.

Leveraging natural language processing and machine learning systems, Ascent’s AI-powered platform is able to map regulations to each business’s unique profile, automatically populating with every obligation and rule change that applies to that business. As rule changes are published, the list of obligations is automatically updated for human review. 

Companies can then connect this data to their own internal system or GRC, or manage obligations within Ascent — linking together crucial steps in pursuit of a fully traceable end-to-end compliance process.


Reduce your compliance costs. 

Ascent helps financial institutions save money on compliance in two key ways:

  • Ascent reduces the cost to comply. Ascent helps slash regulatory analysis time from hundreds of hours to mere minutes. Faster and more accurate than humans alone, Ascent drastically reduces the need for additional headcount. More importantly, Ascent empowers existing staff to take on more value-add activities, thereby strengthening the business overall and shifting compliance from a cost-center to a competitive advantage.
  • Ascent prevents compliance failures and associated fines and penalties. In a world where a new regulatory update is issued every seven minutes, financial institutions can no longer afford to miss a rule change. By automatically delivering the obligations and rule changes that apply specifically to a business, Ascent helps shore up the compliance program, minimize risk, and avoid fines.


You don’t have to choose between compliance and your budget.

Too often, overwhelmed by the scale and challenges of identifying relevant obligations and regulatory change management, firms feel they can’t afford to comply. But by automating the most onerous part of this process, Ascent’s AI-powered platform can reduce workloads from thousands of hours to a handful of minutes and dramatically shrinks the cost of compliance in the process.


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Modern challenges require modern tools. Interested in seeing how Ascent can help you automate horizon scanning, change management, and obligations management? 

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