By Dima Kats, CEO, Clear Junction
Compliance has become one of the biggest problems facing businesses, with 57% of senior executives listing it as one of the challenges they feel least prepared to tackle. From GDPR to turbulent global politics, the last ten years have seen an escalation in both the volume and complexity of regulations.
With non-compliance costs rising every year, it is more important than ever to understand the complexities of the compliance landscape today, as well as act to remain on the right side of regulations.
Growth and risks
The often-chaotic nature of global events since 2008 has led to a host of new regulatory frameworks across the world, creating steep costs for businesses to remain compliant. This murky and constantly shifting framework is hard enough to get a handle on in one country, but when businesses have to make transactions across different countries, each with their own regulatory requirements, the risks and costs can start piling up. For instance, companies agreeing to move funds from Cuba to the EU are potentially in breach of American sanctions but refusing to do so simultaneously risks breaking EU regulations. Such confusion makes the compliance landscape more difficult to navigate, yet no less important.
At the same time, compliance departments at financial institutions are being made to do more with less, having cost reduction targets placed upon their already stretched compliance officials. Increasingly overwhelmed departments are having to deal with managing costs while struggling to find the right staff.
A lack of capacity
Brexit hasn’t just complicated regulations in the UK – 42% of fintech workers alone come from abroad, and the digital skills gap is widening all the time. Across all sectors, over half of businesses reported a lack of software and other digital skills necessary to stay ahead on compliance. The growing difficulties in finding qualified staff to help financial institutions manage their compliance needs is a fundamental problem.
As well as financial damage, the reputational harm compliance failures can cause, both to businesses and executives, has the potential to be devastating. After years of well publicised regulation failures, US bank Wells Fargo wasn’t just faced with a crippling $3 billion set of fines; its most senior executive was barred from positions at any other American banks and seven other executives faced hefty personal fines. Wells Fargo leadership are now struggling with years of reputation rebuilding for their regulatory missteps.
The average cost of non-compliance on a business is $15 million, a 45% increase in just ten years. With the rising costs of fines, both because they are becoming more frequent and severe year on year, it might be expected that businesses are working hard to remain compliant with regulations. However, this is not the case.
In the UK, regulators have stated that the issues companies are being brought up on are the same regulations time and again. Due diligence on new customers, management of anti-money laundering measures, monitoring of suspicious activity and ensuring compliance with the rules are top of the list. This would seem to show a lack of capacity in employing the right individuals, rather than the understanding of regulation on the side of the financial institutions.
Australian banking giant, Westpac, was faced with AU$1.3 billion ($959 million) in fines for money laundering, failure to disclose transactions and other regulatory failings. Money laundering is one of the most common forms of compliance failures, with more fines handed out for money laundering in the first half of 2020 than in 2019.
Stay on the right side
With the lack of skilled staff, constantly shifting regulations and global events making it unlikely the situation will stabilise in the near future, a business looking to move money across borders cannot risk going it alone.
International payments are an area of complication for many businesses, and events such as Brexit, increasing financial sanctions across the world and more make the international payments arena dangerous for companies wanting to avoid hefty regulation penalties.
Partnering with an international payments expert allows businesses peace of mind when it comes to transaction compliance. An experienced and knowledgeable payments provider will keep on top of changing regulations, protect transactions with up-to-date cybersecurity and keep businesses on the right side of regulation at every turn, wherever money is going to or from.
