By Yashoda Fezah, General Manager, CASS (Compliance Administration and Support Services Ltd)
Earlier this year, we explored compliance outsourcing frameworks in jurisdictions such as Seychelles, Mauritius, Singapore, UK and the EU. Indeed, financial centres across the globe have put frameworks in place around outsourcing compliance to specialists, on the understanding that it:
- Attracts expert knowledge which might be lacking in-house;
- increases ability to extend improved services to clients;
- Brings cost benefits through economies of scale;
- Improves access to intellectual property such as propriety software; and
- Frees up management time for other core business areas.
Regulators acknowledge that the compliance burden of businesses is increasing as laws, regulations and enterprise standards become increasingly complex. At the same time, failure to meet compliance requirements has huge repercussions that can expose a business to significant fines. A 2024 report by Fenergo on half-year findings of global financial institution enforcement actions revealed a 31% surge in the value of fines issued in the first six months of 2024 compared to 2023. However, financial penalties are only part of the problem and what is even worse is the reputational damage and lost business that can follow on the heels of a compliance failure.
A 2024 survey shows 80% of compliance professionals in strategic roles focused on helping their organisations identify appropriate risks, while 79% are dedicated to providing greater visibility to senior management, highlighting the critical role of compliance in driving strategic decision-making and risk management. This also means that the increasing compliance obligations are imposing the need for more specialised skills, deeper knowledge, and more sophisticated technology from businesses, which can be daunting for a business to meet on its own. Outsourcing compliance allows a third-party provider to take over certain compliance functions to help the organisation’s core team focus on parts of the process that have the highest direct impact on their business.
The top reasons companies outsource compliance are as follows:
Cost-effectiveness
Companies can save time and resources while increasing their capacity to respond to various updates in regulations that concern different facets of their business. A Thomson Reuters 2023 study saw 61% of respondents saying they expected the cost of senior compliance officers to increase.
Indeed, in-house compliance teams require investments on both human and technological fronts. A Gartner study in 2023 noted that compliance leaders expect technology to be one of the areas of highest spend increases in 2024. The initial investment in compliance software, along with the constant updates needed to factor in regulatory changes, means high budgets must be allocated to this evolving exercise.
Compliance outsourcing ensures that third-party specialists can take on this burden and provide these services at a fraction of the cost by leveraging economies of scale.
Access to qualified resources
Compliance experts are in scarce supply compared to the overwhelming demand for such skilled professionals. International recruitment firm Robert Walters notes the shortage of qualified professionals, and increased skill requirements for compliance experts, as a pervasive issue facing organisations looking to recruit such talent.
By outsourcing this essential function instead of competing to hire from a limited talent pool, businesses can leverage compliance specialists on demand. Companies can also benefit from a global talent pool which possess the expertise to interpret complex legislation and implement robust compliance frameworks – especially multinational corporations navigating complex cross-border compliance regulations.
Continuity in services
Often, businesses have to bear the burden of investing in staff and upskilling them to take on complex compliance roles, only to lose them to a competing enterprise. Outsourcing compliance ensures that the issue of staff turnover has lower to no impact on the continuity of the compliance function, thus reducing the risk exposure of businesses during the transitional period between the departure of staff and the recruitment and training of new staff.
Furthermore, by outsourcing, businesses can ensure that their staff can effectively focus on core operations. Instead of dedicating time, personnel, and capital to factor in constantly evolving compliance demands, organisations can channel their energies toward core tasks such as driving innovation, expanding markets, and improving profitability.
Access to technology
Organisations stand to benefit significantly from outsourcing compliance to third-party providers with sophisticated AI tools at their disposal. Investing in state-of-the-art technology to meet its own compliance needs may not be viable for a firm, but compliance service providers can leverage economies of scale by extending such technology to meet compliance requirements across a large portfolio of clients.
On the other hand, compliance service providers typically have access to tools that are not easily accessible to all types of businesses. Third-party providers offer cutting-edge technology, which could straddle emerging technologies such as blockchain for immutable record-keeping, data analytics for identifying instances of non-compliance and AI for real-time monitoring.
Getting the best out of outsourcing compliance
At the same time, companies must understand and consider several factors before looking for a partner to ensure that they get the most out of this strategy.
First, a company must ensure that its current compliance processes are working – outsourcing compliance is an improvement over an existing, functional arrangement, not a fix for a broken process.
Secondly, companies must understand that outsourcing compliance does not take away their accountability for the function, but only provides them with an expert eye to ensure breaches do not occur.
Finally, if the in-house compliance officers understands how the outsourcing team can help them perform their tasks better, it will be easy to get buy-in from everyone. A good synergy between the in-house and outsourced compliance teams can do wonders for a business. The key is setting clear expectations and timelines, scheduling regular standups, and assigning a point person for the outsourced compliance team to get the best out of everyone.
