TECH TUESDAY is a weekly content series covering all aspects of capital markets technology. TECH TUESDAY is produced in collaboration with Nasdaq.
Compliance in financial services is undergoing fundamental change, driven by a push to move the function from a cost-based operations center to part of the enterprise value chain.
Emerging technologies such as artificial intelligence (AI)/machine learning (ML) are helping propel this evolution, and firms are also increasingly focusing on innovation in compliance as part of their future plans, as part of a move beyond COVID-era emergency contingencies.
Those were some of the key takeaways from Nasdaq’s 2023 Global Compliance Survey, produced in collaboration with Chartis Research. Nasdaq has been gathering views annually since 2015, and the survey uniquely provides comprehensive tracking of compliance trends over a period of significant regulatory, economic, and societal change.
This year’s Nasdaq Global Compliance Survey was conducted in May through July 2023 and includes responses from 190 compliance professionals from sell-side firms (39%), market infrastructure providers (24%), retail banks or corporate entities (20%), and buy-side firms (17%). One in five (20%) respondents were C-level executives, while 18% were executive or managing directors and 32% were vice president or director.
Diving deeper into some of this year’s trends – they can be bucketed into three main categories:
- Compliance Culture
- Technology and Solutions
- Budget and Investment
Compliance Culture
Avoiding reputational damage is the most important function of compliance, according to 43% of respondents. The more proactive function of promoting a culture of compliance was cited as most important by 28% of respondents; that’s down from 34% in 2021, but up from just 5-6% between 2017 and 2020.
In addition, compliance professionals have regulation front-of-mind, as one-third of survey respondents cited ‘New reporting and administrative requirements detailed by regulation’ as the most prominent compliance challenge in the next 12 months. Regulation moved to the #1 concern from #2 in 2021, when understanding and implementing technology was the most pressing concern.
The regulatory challenge comes not so much from new rules as from the growing requirements of regulators, notably around effective implementation and reporting.
Technology and Solutions
Technology has been integral to enhancing compliance capabilities, and institutions have invested significantly in ‘upskilling’ staff to understand and adapt to technology. This is in line with the trend toward closer partnerships with third-party technology vendors to provide more transparent, usable and explainable solutions.
The survey highlights how many firms are opting for a hybrid model of in-house plus third-party systems, and some are moving entirely to external offerings. This trend is expected to continue as firms ask their compliance to not just ‘check the box’, but also add value in the areas of strategic planning and risk mitigation.
Better technology is needed to keep up with more complex market structures, emerging asset classes such as digital assets, and more sophisticated methods of chicanery.
Budget and Investment
Compliance is attracting increased investment, and importantly, investments in technology are not just earmarked to plug short-term gaps, but also as a long-term generator of value beyond efficiency and effectiveness.
“Overall, the compliance market has demonstrated resilience, with healthy levels of tech investment,” the 2023 Global Compliance Survey stated. “Organizations are combining the power of core solutions and investing in analytics, and there is great dynamism in fighting financial crime, both in the capital markets ecosystem and beyond financial services. And despite macroeconomic challenges, the compliance function is growing in both importance and relevance: almost all practitioners we surveyed see it as a core strategic function.”
To access all of the data and insights from Nasdaq’s 2023 Global Compliance Survey click here.
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