FIA Insights: Fulcrum’s Michelle Pedra unpacks the conundrum of compliance

The financial services industry faces more and more regulation, and attendant costs, which puts the survival of businesses at risk as they try to keep up.

Michelle Pedra.
Michelle Pedra.

But, says Fulcrum’s head of compliance, Michelle Pedra, in an article in the latest edition of FIA Insights, the Financial Intermediaries Association of Southern Africa’s quarterly periodical, those who focus on costs have it wrong. 

“Those who suggest that keeping up with spiralling compliance costs is the big issue may be missing the point entirely. The more germane question should be: ‘Are we getting the benefits of compliance, and do they justify the associated costs?’” she writes.

Regulatory and compliance risk is a leading risk for all financial services industry players. But even though there is heavy investment in compliance, regulatory risk is still escalating.

Financial services businesses, Pedra continues, face a lot of new legislation but their compliance departments are ill equipped to do their work. At the same time, new regulations make it more difficult to do business and companies fail – which leads to more regulation.

“This is the compliance conundrum: spending more to get less,” Pedra argues.

However, she says, there are three actions that can resolve the conundrum:

  • “Understand that the era of low regulation is over,” because regulation increases to reduce the risk of financial services companies failing, to promote consumer protection and to address the risk associated with financial services markets’ complexity
  • “Be proactive,” in that companies should not simply tick boxes and should rather focus on good outcomes – and should not only follow the regulator’s lead
  • “Make a move away from compliance and towards governance” by entrenching compliance in every level of organisations

"Companies that fail to understand this wider context to governance and compliance convention are not on the correct field of play. Conversely, the individual company that invests in governance will have a sustained competitive advantage,” writes Pedra. 

To read her full article, click here.