The compliance function is undergoing “fundamental change”. That’s according to the latest Nasdaq Global Compliance Survey. New technologies, future innovations and a reorganisation of compliance into the finance value chain represent new opportunities and challenges for the market.
The report, with a particular focus on trade surveillance, outlines “a critical area of workflow that is at a crossroads”, with some firms utilising in-house solutions, some moving to third-party offerings, and others leveraging a combination of the two approaches.
The increasingly complex nature of risk and compliance management has seen organisations partner with technology vendors, with 90% of institutions looking to an outsourced model for their planned spend on compliance technology. The largest percentage of third-party solutions (81%) was used for audio and electronic communications (A/E-comms), and the lowest (72%) for fraud.
Consequently, the shift toward third-party solutions is set to accelerate, as firms are looking for efficiencies and ways in which compliance functions can add value to strategic planning and overall risk mitigation.
Indeed, many firms believe compliance is a key component of their strategy. Despite macroeconomic challenges, the compliance function is growing in both importance and relevance: almost all practitioners surveyed saw it as a core strategic function. However, there are regional variances, with 92% of respondents in the Americas suggesting compliance is core to their strategy compared with 67% in Asia-Pacific (APAC). Despite these variances, the report finds that compliance has undergone a culture change, with the activities and responsibilities of compliance functions better understood and more valued at a core level.
Due to the increasing appreciation of compliance, budgets have continued to grow over the past 12 months, although the outlook for 2023 and 2024 is more modest than for 2021/2, the report found. Investment is shifting in part toward advanced technologies such as AI and Natural Language Processing (NLP), and toward making manual processes more efficient by improving workflows and automating investigations.
Looking at potential hurdles, a third of the survey participants saw upcoming reporting and administrative requirements as their biggest challenge over the next 12 months, a shift from the 2021 survey, when it was second behind ‘Understanding technology capabilities and implementing them’ – 27% of respondents stipulated that they are not adequately prepared to meet regulatory requirements, the highest since pre-Covid levels, an increase from 20% in 2021.
The report concluded that despite challenging market conditions, the compliance market has been resilient, with investment largely holding up and even growing substantially in some core segments. “What is particularly encouraging is the level of investment in technology, not only to plug short-term gaps but also as a long-term generator of value beyond efficiency and effectiveness.”
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