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  • At a recent conference held in the City of London –  ‘Optimising compliance in uncertain times’, Compeer, the specialist in business performance benchmarking and research, released findings from its annual compliance survey in partnership with fintech company, JHC. The research investigated the challenges wealth management firms face in coping with compliance change, and identified areas where technology is helping to manage the additional workload brought on by new regulations.

    ‘Optimising compliance in uncertain times’ uncovered that suitability is becoming a serious concern across the industry. Despite the fact that underlying issues and regulations have been present for a long time, the number one reason why suitability is still a significant challenge is because firms simply do not understand the requirements.

    Furthermore, 44% of respondents revealed that their compliance costs had risen as a direct result of carrying out ongoing suitability testing. Despite this, one in four firms handle suitability manually, while 76% use a combination of technology and manpower.

    Amir Hakim, Head of Wealth Solutions at JHC, said: “Suitability is an issue that will only grow in importance, but the research findings highlight that firms are still not getting to grips with it. The FCA wants to see more rigor and process around suitability. Ideally, investment managers should be monitoring their portfolios on a daily basis. It sounds daunting, but in reality, it doesn’t need to entail large scale changes or huge costs. We can see that a huge chunk of the industry still isn’t utilizing technology, but when it comes to suitability, technology can be light touch, quick to implement and a relatively inexpensive solution.”

    Alongside suitability, the report also revealed that:

    Compliance is no longer a role undertaken just by the compliance department; it now engages the whole firm. This is evidenced by cost and time. At many firms, all departments saw an increase in time spent on regulatory tasks, with 58% of senior management spending up to 40% of their time on regulation. Alongside this, while compliance costs remain static, 59% of respondents put this down to the investment being spread across the whole business;

    Many firms are concerned about record keeping and being able to evidence the nature and content of client interactions and their impact on portfolio suitability;

    Firms are still majorly unprepared for incoming financial regulation – 41% of firms believe it will be tight to reach all the necessary requirements for MiFID II while 31% of firms had not yet looked at GDPR requirements;

    Brexit is not a major concern for the industry – yet;

    And despite compliance concerns, the majority of firms (58%) predict annual growth in AUM of between 6% and 10%.

    Nik Lysiuk, Senior Research Analyst at Compeer, added: “Compliance is something that is often viewed as a burden, but this report reveals that it is equally an opportunity. Regulation-driven IT spend shouldn’t be viewed as a necessary evil, but instead technology can be utilised to lower costs and enhance service, allowing client-facing staff to focus on managing their client relationships while the technology takes care of identifying and highlighting any regulatory issues. Plus, compliance can offer an opportunity to gain competitive advantage, especially when you consider that parts of the industry are seriously unprepared when it comes to MiFID II, GDPR and beyond.”

    Results are from interviews with COOs and senior level risk and compliance staff from firms that are collectively responsible for managing almost £100bn in UK wealth management assets.

    More about Suitability