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.