Do businesses understand the true cost of compliance?
The compliance functionality in any enterprise is as integral as any cyber security team.
Yet, whilst compliance teams battle with an ever-changing array of regulatory compliance to combat increasing risk, their budgets over the last few years have been tightening which has created an exasperating situation, including having an inherent skills and technology shortage that cannot fill the gaps.
2022 saw an exponential rise in evolving threats and this warning from the UK Financial Conduct Authority (FCA) – Russian invasion of Ukraine: operational and cyber resilience, March 2022
“You should consider your ability, and that of your third-party providers, to withstand a cyber-attack. You should take all appropriate steps to shore up your controls, including raising staff awareness: that may, for example, include re-running staff ethical phishing campaigns. Consider if your staffing levels are appropriate to deal with an elevated cyber risk.”
Research conducted by Thomson Reuters indicated that assessing cyber resilience remains a concern among compliance practitioners. However, the research showed that this has seen a reduction in 2022, more than half (55%) expect more compliance involvement in assessing cyber resilience however this was at 62% in 2021 and 56% in 2020.
Businesses are aware of the risks and challenges, but are they aware of the costs?
“Firms are well aware of the risks; to prepare for same, effective cybersecurity and IT governance and risk management is essential. Boards of firms should have an excellent picture of the risks their organisations are facing and how they are actively working to mitigate them.” “The role of financial regulation in building resilience, anticipating risk, and protecting citizens – in steady times and through shocks” – speech by Derville Rowland, Director General of Financial Conduct at the Central Bank of Ireland, March 2022
However, research conducted by QO with enterprise businesses recently indicated that enterprises in the UK do not have total visibility on the costs of compliance. Only 20% of enterprises asked could strongly agree that they had accurate costs.
This number is even more shocking when you review the figures per industry with particular concern in the finance sector, with only 30% of those asked strongly agreeing that they were aware of compliance expenditure.
Another highly regulated industry – manufacturing – also revealed shocking statistics where only 20% of those questioned could strongly agree with that statement too.
Take a look at some of our research results
Are businesses preparing for the compliance demands though?
Our survey indicates that they are not!
In the same survey we conducted with enterprises, we asked them whether they prepared their compliance activities periodically in accordance with regulatory demands – only a meagre 16% answered that they did.
And yet, with all these pressures which we explored recently in our blog https://www.quodorbis.com/is-automation-the-answer-to-businesses-compliance-complications-and-reduction-of-cyber-risk-in-2023/ reviewing how automation can support these challenges, it was inconceivable to us that only 16% were actually preparing their compliance in line with current demands.
However, that too can be challenging as, with so much regulatory reform happening, we understand that to be able to prepare for regulatory change, when so much has such a lack of clarity, is almost inconceivable. So it was of no surprise to us that only 14% of enterprises that participated always maintained compliance readiness, but more staggering was the fact that that number was 0% in the financial sector.
Why are enterprises not aware of the costs?
We were interested in exploring why UK enterprises are not aware of the costs.
So much has been focused on tightening budgets and increasing demands on compliance teams, but when we investigated with enterprises per industry sector, what expenditure they actually tracked to obtain total visibility on compliance costs, the results were mixed with some tracking elements of costs but not tracking the whole picture.
Business and professional services and manufacturing fared fairly when asked if they tracked financial investment in any technology necessary for the compliance team to acquire data from other departments, with 67% and 58% respectively answering they did.
Financial services came in at 48% answering yes, they tracked this level of investment. Overall combined figures indicated that 47% of all enterprises tracked financial investment in any compliance tech.
Encouraging, yes?
However, tracking technology does not present the total picture and when questioned about the time spent processing or formatting data from other departments to make it usable by the compliance team revealed challenging results.
Poor performers included finance where only 43% actually tracked the time spent and, worse of all, the Business and professional services sector with only 17% reviewing these associated costs.
This is particularly revelatory when you review that combined only 42% participants actually did track this, however, even more concerning is the 30% of enterprises asked actually tracked the cost on the time spent by other departments in getting the necessary data together for compliance projects.
So how do we know the true costs then?
We don’t.
There’s one thing to track the financial investment into tech, but that does not provide a truly holistic view of the cost of compliance.
The enterprises we spoke to were not even able to review the cost of the time spent checking the veracity of internal data before submitting to external auditors. Financial services and retail distribution faired the worse with only 26% tracking these costs, with business and professional services the worst with only 17% tracking the associated costs.
So, do enterprises think they know the cost of compliance or are they only seeing part of the picture?
The QO view, is that it is misconception that cost only lies in the tech we implement; we must start measuring the time spent by our teams and understand the associated costs in terms of not only tech, but people power in order to have the breadth of understanding needed to understand where savings can be made, or investments made better. Sometimes it’s not always about the £ but about the cost in terms of the teams being over stretched, focusing on heavily manual tasks, rather than supporting operational resilience by focusing on more integral tasks.
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