Recent surveys seemingly point to contradictory behaviour in relation to compliance and performance management. A research report from Financial Insights, suggests that compliance reporting may no longer be the top priority for the financial services industry yet other reports, looking across all business sectors, say that the compliance burden is very important, because it is acting as a brake on the broader activities of the finance function. FSN's reviews the position.
Recent research concluded by Financial Insights, (an IDC company specialising in the Financial Services sector), sponsored by Cognos, says that European banks place monitoring and improving business performance among their top priorities, ahead of regulatory compliance and product innovation.
"While compliance has been the main driver of IT spend amongst this sector in recent years, banks are now focusing on measuring the basics that drive business, like customer service and sales, and it's important to be able to improve performance in these areas to ensure overall business goals are met," said Bill Bradway, Group Vice President of the banking practice at Financial Insights.
Keith Stone a financial services consulting partner at Deloitte, agreed that there is a need to focus much more on basics. He told FSN, "We have seen some quite large banking concerns struggling to manage some of the most basic performance management needs around budgeting and planning. The difficulty is that in the past, senior executives have been willing to sign off expenditure on anything that has a compliance label attached to it but have been more reluctant to spend in other areas that may be more pressing. As a result, systems have been patched up repeatedly and many now warrant attention."
This is a view supported by Laurence Trigwell, senior financial services director at Cognos. He told FSN, "One of the matters highlighted by this survey is that despite significant spending on technology over the last few years many systems are not as advanced and integrated as they first appear. Superficially, dashboards, scorecards and other information systems appear to be in place but underneath they are being populated by a lot of manual work-arounds and spreadsheets."
However, the notion that compliance issues may be receding in favour of other systems needs received mixed reactions from other market observers. Dennis Horner, a managing director at Atos Consulting expressed some surprise at the findings. "The financial services sector is the most regulated of all of the sectors we work with and I wonder whether there might have been some confusion around terminology. Whilst Basel II is clearly compliance related, 'know your customer' initiatives and some anti-money laundering aspects could be described as customer performance management," he told FSN. "It could be a question of emphasis rather than absolutes," he added.
Trigwell, concedes that this is a possibility. "There is definitely a blurring between compliance and performance management in the financial services sector and compliance is becoming a part of everyone's role. So, for example, customer management and customer risk management could be regarded as synonymous."
Atos Consulting's own recently released European survey looked at CFOs' attitudes towards a raft of recent and forthcoming financial regulations including IFRS, Sarbanes-Oxley, Basel II, MiFID, LSF and Tabaksblat. They found that CFOs of major European companies feel that increased regulation is still a very heavy burden on the finance function and has impacted on their ability to increase their strategic value to the business.
The Atos survey found that four out of ten European CFOs believe that compliance burdens actually reduce their own strategic business involvement. "Whilst our survey was cross-industry, I do not believe that there was any significant difference in the findings in the financial services sector," remarked Horner
Trigwell says that the apparent difference in attitude towards compliance between the two surveys could be partially explained away by the type of participants interviewed. "Our survey included some CFOs but also polled the views of senior business managers who are more focused on performance management," he remarked.
Nevertheless, it is interesting that even senior business mangers appear less concerned with compliance than might be expected. So if compliance is not the most pressing issue, what is? According to the Financial Insights survey, almost 50% of bank executives said that gauging the performance of individual branches was the most pressing challenge for retail banks. The poll also listed improving customer service as a top priority with a rating of 64%.
"Banks, and more specifically, line of business heads, seem to be in a tough spot: how to get ahead of the rest of pack and simultaneously meet complex and emerging demands for improved transparency and controls," said Trigwell.
The next compliance milestone for the financial services sector will be MiFID, due to be introduced in November 2007. According to Atos, eight out of ten of CFOs in the financial services sector have not yet started to work on complying with standards. "Compliance will always be a very big issue. There is a whole gamut or regulatory requirements both now and in the future which will impact on the financial services area and it's hard to see that compliance will remain a lower priority for very long," remarked Atos' Horner.
Whilst all businesses would prefer to focus on matters of performance that allow them to succeed it appears that compliance is here to stay. It seems that compliance and performance are two sides of the same coin, for example, investing in one side should bring benefits to the other. As Deloitte's Stone says, it is just that compliance tends to get the attention and funding, often at the expense of more basic needs. However, the Financial Insights survey suggests there may be pent up demand for better solutions that clearly support strategic programmes such as improving customer service. All organisations ignore these elements at their peril.
