Despite the march of tech-driven automation and increasing regulation, the financial services sector in the UK continues to rely heavily on manual processes when it comes to managing risk.
This is problematic for various reasons. For instance, manual compliance processes based on technologies like spreadsheets and text documents elevate the chance of inputting errors, cause version control challenges and often involve task duplication.
Yet these legacy approaches remain the reality for many financial institutions, according to new data from My Compliance Centre gleaned in a survey of regulated financial businesses.
The Fintech Compliance Management Survey offers a benchmark on how firms are managing compliance and reveals where technology is being used, creating opportunities to change operations for the better.
Findings explained: download the survey here
The survey’s headline finding, supported by 66 percent of respondents, showed that manual processes are by far the greatest challenge facing compliance teams.
Keeping up with the relentless pace of regulatory change wasn’t far behind, with this being the top challenge for 47 percent of firms.
Furthermore, 42 percent said they were grappling with limited resources, while an equal percentage claimed to be struggling to balance compliance demands with broader business objectives.
These findings suggest that compliance, despite its critical importance, is often under-resourced and hindered by outdated technologies.
Diving deeper into the operational landscape, the survey revealed that just 28 percent of compliance processes were automated, leaving a massive 70 percent still managed manually on applications such as Excel.
Curiously, despite this heavy dependence on spreadsheets, only four percent of respondents believed their compliance function contained advanced Excel skills, pointing to a disconnect between current tools and true proficiency.
While automation is nascent across the board, certain areas show more progress. Processes related to financial crime, such as sanctions and transaction monitoring (86 percent automated), KYC and customer risk assessment (72 percent) and fraud (64 percent), are the most technologically advanced.
Compliance training also shows a respectable 59 percent automation. However, beyond critical financial crime areas, compliance management largely remains a manual endeavour for most firms.
Notably, Consumer Duty stands out as the only compliance process where zero firms have introduced automation, a reflection of its complex, cross-business nature.
Barriers to change: why are firms clinging on to manual processes?
Our interactive webinar polls during the survey provided further insights into the barriers to adopting more compliance technology. Overwhelmingly, 92 percent of firms identified “budget” as the primary obstacle.
However, only eight percent felt they “couldn’t convince the Board”, suggesting a potential perception that budget is a distinct issue from executive buy-in, despite boards ultimately allocating funds.
Other significant hurdles preventing technology implementation include “time” (30-40 percent), “implementation risk” (30-40 percent), “not convinced of the benefits” (30-40 percent) and “awareness of solutions” (30-40 percent).
This indicates that firms need not only the funds but also the time, confidence and knowledge of available solutions to make the leap to an automated approach to compliance.
The survey also highlighted that 82 percent of respondents routinely spend time on important but inefficient work due to the tools they use – underscoring a compelling case for implementing better technology to drive automation.
Only a select few leading firms have truly automated the majority of their compliance processes. And that means there’s a significant opportunity for others to catch up and gain a competitive edge.
Aligning with the FCA: how modern technology can meet regulator objectives
The impetus for automating compliance was given a boost earlier this year by the Financial Conduct Authority (FCA), which made its regulatory priorities clear in its “Dear CEO letter” to payment services firms in February this year.
The document emphasises the need for firms’ “governance arrangements and systems and controls, including reporting mechanisms,” to be “effective and proportionate to the nature, scale and complexity of your business and the risks to which it is exposed”.
There’s an undeniable connection between the challenges highlighted in the Fintech Compliance Management Survey research and the FCA’s expectations set out in the Dear CEO letter.
The point is further reinforced in leading studies by PwC, Deloitte and GRC 20/20, which consistently argue that strategic investment in compliance technology accelerates decision-making, enhances risk management capabilities and delivers tangible strategic value well beyond mere regulatory box-ticking.
Read the full report here
