Compliance could prove costly

This is according to a new survey from compliance outsourcing specialist Huntswood. Furthermore, 95 per cent of those surveyed believe that the latest FSA regulatory regime will accelerate industry consolidation.

In the survey, compliance professionals in the retail financial services sector answered questions on a range of topics from the effects of specific regulatory recommendations to the forecasting of long-term trends within the industry. The pressure to meet compliance cost targets and stay within budget was cited as the most important compliance issue for financial services firms, followed by dealing with proliferation of recommendations coming from the FSA and the Government.

Commenting on the survey, David Brownlow, chief executive at Huntswood, said: "The predictions of widespread closure to new business and of industry consolidation reveal growing concern that the ever-increasing costs of compliance will lead to the restructuring of the financial services industry. FSA regulatory requirements have brought extra cost pressures upon financial services companies at a time when profit margins are being squeezed by falling markets and the advent of the '1% world'."

Around 52 per cent of those surveyed expect the number of staff working in compliance to increase in the next 12 months, thereby raising compliance-related costs. Moreover, 87 per cent of those surveyed believed that the current FSA regulatory regime will lead to more product-related reviews. Being poorly prepared for these reviews can cost financial services organisations dearly. In total, the pensions miss-selling scandal is estimated to have cost the industry £16 billion.

The greatest increase in costs stemming from regulatory change is expected to come from complying with the recommendations of the Sandler Report. When the compliance professionals were asked to score depolarisation, the Sandler Report and N3 for their relative cost implications, the Sandler report came top with 38 per cent of the marks, compared to 34 per cent for depolarisation and 28 per cent for N3.

On a positive note, the survey revealed that compliance professionals do not foresee the financial services industry being burdened with the move to a pan-European regulatory regime. 78 per cent of respondents do not believe that such a regulatory system for life and pensions would be workable in practice and 81 per cent do not think that such a system will be introduced within the next five years.