RSS FeedBy M. Isi Eromosele
The current financial environment should definitely place compliance and risk management at the forefront of global financial markets. Well applied new regulatory rules will force financial institutions to reevaluate their lackadaisical compliance of existing compliance regimes, most of which failed to keep pace with ever rising levels of risk. There is absolutely a need to create and implement a new approach to enforcing regulatory compliance at a global level.
Some new regulatory schemes are imminent. New measures have been proposed by the Basel Committee on Banking Supervision that involves new measures for stronger risk protocols and improved procedures for valuing and disclosing assets, including the capital treatment of complex structured products.
The Institute of International Finance has made recommendations for improvement in risk management practices based on analysis of leading banks and securities firms, while the United States Treasury has recommended the overhaul of the U.S. regulatory structure. It is to be expected that as new regulations and requirements are put in place, the cost of compliance will continue to grow. Conversely, the cost of non-compliance will definitely be much higher.
Today, global financial services institutions manage compliance is a disjointed manner. This has resulted in redundancy, overlap and increased cost to the firms. Financial organizations tend to comply with jurisdictional regulatory orders rather than globally coordinated ones. This kind of cherry picking needs to stop.
Additionally, compliance management at these financial institutions is typically handled outside the traditional risk management process. The result is a fragmented approach that separates the management of compliance risk from management of other risks.
The above inefficient process is further stressed by the high cost of compliance for many financial institutions, which continues to grow. Regulatory compliance costs for larger U.S. financial services companies increased an average of 130 per cent between 2003 and 2008. For these same firms, regulatory compliance management costs between $200 million and $400 million a year. With these high levels of cost, any kind of savings would be significant for these institutions.
Financial services institutions need to increase the effectiveness of their compliance management, thereby reducing their costs. They can achieve this by simultaneously streamlining their compliance and risk management, while taking a risk-based integrated enterprise-wide approach to compliance.
M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance
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