The Compliance function has undergone massive change in recent years. Formerly housed in its “ivory tower”, it has been decentralised and reorganised to bring it closer to each area of operations. Does this change make the company more attractive and more competitive? CACEIS’ experts respond.
Is Regulatory Compliance, which essentially means the company and its employees adhering to regulations, just another limitation on business?
In 2019, CACEIS took part in a European Commission study which sought to estimate the compliance costs generated by EU regulations introduced or amended after 2008 – in particular, prudential reporting obligations. Each participating institution cited the huge cost increases originating from the post-crisis “regulatory tsunami”.
But do the costs resulting from compliance concerns make CACEIS less competitive, and if so, are competitiveness and compliance mutually exclusive? Closer analysis is therefore required to gain more insight into the impacts of compliance on competitiveness.
Regulations, whether local, European or international, require significant investment up to and including the implementation phase. CACEIS’ Compliance Department has therefore had to adapt: teams working on deciphering the legal texts and translating them into practical procedures are now functionally separate from business lines’ own compliance teams, which are themselves again separated from the division dedicated to Financial Security.
These specialisations within the Compliance Function, which are a more recent organisational structure, are also shared by AFTI, the French Association of Securities Professionals, which represents the post-trade industry in France. Indeed, while compliance and financial security matters may overlap, experts in one area are not necessarily experts on the other. “This realisation led to the creation of a dedicated financial security task force last year” says Éliane Méziani – Senior Advisor, Public Affairs at CACEIS and leader of this group at AFTI. “We’re tackling numerous issues, including cybersecurity, AML-CFT and KYC”.
Compliance costs are not limited to work on proper implementation of regulations. They include costs incurred as a result of compliance training and the time needed for staff to get up to speed with incoming procedures. Recent regulations even include a requirement to teach staff about new demands, which is often coordinated by the Compliance department. The expenses surrounding understanding regulatory demands, adapting to them and working under them (e.g. reporting requirements, filing obligations with authorities and regulators) have a de facto impact on costs.
There may also be differences between European countries in terms of interpretation and implementation of European directives. This can lead to overregulation, something that former French Prime Minister Édouard Philippe mentioned in 2017. Despite his statement, , Eliane Méziani confirms that “overregulation has always happened in our industry, and clearly carries additional compliance costs”.
It is just as important to note the indirect costs of compliance: expensive and over-frequent inspections and national audits aimed at checking adherence to European legislation can increase compliance costs. The time spent responding to regulators’ demands may be long, and take priority over routine guidance and supervision duties. Yet this external supervision is essential for ensuring and maintaining any bank’s or service provider’s degree of compliance.
So, with this in mind, are Compliance and Competitiveness compatible? The evidence suggests that Compliance can increase the overall competitiveness of CACEIS or any other financial institution because the effective compliance procedures avoid exposure to the risk of non-compliance*, whether reputational, financial, legal or extrajudicial, essentially failing to comply with regulations. Avoiding sanctions and protecting CACEIS’ reputation benefits the Group’s entities and enhances its service offering, providing a clearly positive impact for our clients too.
Compliance is also about developing long-term relationships based on professionalism and client servicing excellence. It raises standards across the board, making the Group more credible and trustworthy in the eyes of its clients and partners.
“Another key point for CACEIS is fostering a healthy culture of compliance and ongoing training to meet the challenges and risks facing our business, to ensure the loyalty of our staff, and to make the company a more attractive proposition, through the development of a virtuous cycle that serves to continuously enhance our services. For example, CACEIS has been promoting the AMF’s (French Market Authority) requirement for French entity staff to complete its professional certification, by offering it to staff from other entities that are not directly concerned by those French market regulations” explains Elisabeth Raisson, Group Head of Business Compliance at CACEIS.
While the robust nature of the compliance system at CACEIS is clearly visible on a day-to-day basis, the global pandemic has highlighted its importance for keeping our business running smoothly. In concrete terms, the Compliance function has demonstrated the essential nature of its work during the crisis by helping to maintain the quality of services through the tougher working conditions. Compliance teams have responded quickly and effectively by introducing ad hoc measures to ensure business continuity without any increase in regulatory risk. “These adjustments were not easy (arranging the right contacts, governance, following up on decisions, etc.), but our organisation was able to be responsive and effective during working conditions that were hard to imagine before the pandemic. Compliance has strengthened links with operational areas of the business, each attentive to the unprecedented constraints facing the others” says Elisabeth Raisson.
Eliane Méziani adds: “At CACEIS, the Compliance division also fulfils an advisory role, assisting business lines and sales teams. Analysing regulations that impact our clients, not just CACEIS, helps us define a release schedule for enhancements to our services, and ensure we best support our clients: this can be a source of competitiveness too, and that’s something that everyone at CACEIS can be part of, not just staff in the Compliance function”.
In summary, although the Compliance function is a cost centre, it is also key to developing and maintaining a strong business reputation, and promoting robust ethical guidelines throughout the group. However, the Compliance function can only pursue this goal if these guidelines and procedures are adopted and shared by our staff across our network.
“A central compliance function, operating from a figurative ivory tower, setting rules without discussion with business lines, could not meet its own aims and would benefit neither the Group nor its clients. Compliance has long been far more than just a supervision function, becoming a partner in the bank’s development, and involved upstream on many key projects. At CACEIS, having a decentralised organisation structure with the function embedded in all international entities allows us to better understand differing requirements and develop a set of principles that can be followed by all, based on the Group’s shared values included in our DNA. So yes, Compliance actually is itself a source of competitiveness” Elisabeth concludes.
* “Non-compliance risk” is defined as the risk of legal, administrative or disciplinary punishment, or of significant financial loss or damage to reputation, arising from a failure to respect measures applicable to banking and financial operations, whether these be of a legal or regulatory nature, concern professional and ethical standards, or be Executive instructions.
