Compliance at Financial Services Firms Falls Short

Financial services firms give lip service to the importance of compliance, but the majority fails to devote adequate resources to the function, according to a new survey by Cipperman Compliance Services.

The survey found that the compliance function in these firms tended to be underfunded and understaffed.

Survey participants included broker-dealers, asset managers, alternatives managers and wealth managers.

The survey found that on average, 74% of those tasked with compliance duties believed their firms should commit more resources to the compliance function.

Eighty-three percent of broker-dealers and 58% of asset managers said they needed to focus more resources on compliance.

“Based on our experience with many firms and the regulators, we believe firms should spend a minimum of 5% of revenues or 2 bps of assets under management on the compliance function,” CCS chief executive Todd Cipperman said in a statement.

“Investing in compliance protects the franchise and preserves assets under management. We view compliance as the firm’s defense. And defense wins championships.” 

The statement pointed to a 2013 study sponsored by KPMG, Alternative Investment Management Association and the Managed Funds Association that said firms should be devoting approximately 7% of operating costs to compliance, with a minimum expenditure of $700,000 per year.

The CCS survey found that only 6% of respondents complied with these industry best practices, leaving them vulnerable to a charges by regulators or clients that they lack a culture of compliance.

“Firms need to show their commitment by dedicating the necessary resources,” Cipperman said. “Simply naming one compliance officer is not a compliance program. Most firms need a staff and outside support to adequately address all the regulatory requirements.” 

Alternatives managers, in particular, reported less engagement with the realities of post-Dodd-Frank compliance than other parts of the financial services sector.