The topic of cost reduction triggers some contrasting expectations by geography. Overall, most firms (67%) report that 2021 compliance budgets will increase or stay the same. However, 71% of non-UK banks expect their budgets to increase, whereas 100% of UK participants expect budgets at best to stay the same, but more likely to decrease. This divergence is likely to reflect the scale of investments made historically to respond to regulatory expectations.
Survey responses across all firms suggest that the adoption of technology and automation will be focused on areas where the compliance team currently spends a disproportionate amount of time: compiling MI and reporting (75%), horizon scanning for regulatory change (38%) and performing routine compliance monitoring (38%). Investment in data and technology in such areas will improve compliance function efficiency and provide the quickest return on investment. It will also enable the compliance team to devote more time and attention to forward-looking, proactive and value-adding activities. Firms consider these to include performing thematic reviews and trend analysis, performing market and trade surveillance and providing high value advice to the business.
Overall, survey participants feel that the adoption of technology, machine learning and AI are still very much “work in progress” and that more could be done to maximize their impact. As expected, the larger firms are generally making increased use of technology, having the advantage of scale in building the business case for investment. Firms with a customer base of >100m rate their technology adoption higher (33% at 7-9/10 and 67% at 4-6/10) than those with <10m (33% at 7-9, 44% at 4-6 and 22% at 1-3).
There is broad consistency around where technology is initially being applied, the most common areas being compliance monitoring and surveillance (70%), MI and reporting (65%), horizon scanning and regulatory inventory management (60%) and risk identification (45%). Firms are starting to use data analytics, particularly within compliance monitoring and surveillance (80%). However, only 25% are using data analytics for real time MI dashboards. UK firms are most likely to use data analytics for risk identification and monitoring, perhaps due to the regulatory focus within the UK market.
Firms unanimously recognize the need to embrace technology, but substantial obstacles are impeding adoption. Firms highlight the lack of capacity of current resources (a key blocker for 67%), coupled with a lack of relevant technology skills in-house – whether within or outside the compliance teams themselves. Many respondents (88%) identify competing pressures with other compliance priorities. Therefore, it seems that compliance teams are too thinly stretched in performing their day-to-day roles to allow time to fully consider the broader adoption of technology. Most have yet to achieve the “virtuous circle” of making time for technology adoption, which could increase compliance efficiency and effectiveness, and which could free up time and capacity to consider further efficiencies and to focus on more value-adding activities.
This could be about to change. The new ways of working enforced by the COVID-19 pandemic largely depend on technology. Could one of the rare upsides of the pandemic be that compliance forges a way through its historic blockers to enable rapid and sustained technology adoption?