March 27, 2008

Concern over the rising cost of compliance is merited, reports New York-based Deloitte & Touche's Deloitte Center for Banking Solutions. According to a survey of chief compliance officers, chief risk officers and other senior executives at 20 of the top 50 financial institutions in the U.S., compliance costs are eating up more and more of firms' net income, growing from 2.83 percent of net income in 2002 to 3.69 percent in 2006. Since there are no tangible ways to measure the cost savings or risk avoidance that regulation provides for firms, the spending increase is a tough pill to swallow, Deloitte notes.

One of the primary reasons for the increase in costs, according to Deloitte, is that institutions are responding to regulation by applying human resources to monitor compliance, rather than investing in scalable technology resources to manage the effort. The research report shows that 60 percent of respondents' compliance-related spending in 2006 was on compensation.

Firms must find ways to implement technology alongside business process improvement to break the trend and realize efficiencies in their compliance centers, Deloitte asserts.

Courtesy of Wall Street & Technology, a TechWeb property.