Compliance: pandemic luxury or necessity?

At the time of writing this blog, the UK is struggling to recover from the Coronavirus pandemic.  It has just been confirmed that the UK economy contracted by an unprecedented 20.4% in the month of April 2020.   The country is anticipating further significant rises in unemployment and a prolonged and difficult journey back towards re-opening large swathes of the economy.   The government will be exploring every conceivable way possible to reignite the battered economy whilst holding the virus at bay.

And without doubt one of the repeated requests made of the government will be to “get rid of all that bureaucratic and regulatory red tape”.  There will be strong voices in society who will see this forthcoming likely depression, coupled with our exit from the EU ,as a significant opportunity to push forward their agenda to radically alter the nature and focus of the UK’s regulatory regime in an attempt to “make UK plc more attractive to inward investment”. 

However, an equally strong set of voices is calling for the regulators to ensure consumers are better protected at this difficult time – pressing firms to ensure they carry out appropriate forebearance procedures with those consumers who are struggling to repay mortgages, loans and other debts.  Consumers are also being seen as particularly vulnerable to scammers, phishers and sophisticated criminal activities at this chaotic time and so there are calls for firms to do more to educate consumers and prevent fraud and theft.  Many see this as the moment when the financial services sector repays its moral debt to the tax payer for the post financial crisis bailouts.

Additionally, the government is fully focused on ensuring that UK plc and its underlying financial system is robust and able to cope with the enormous strains the current situation has put on the system.  As a result the regulators are pressing firms (especially the larger ones) for more and more data to feed more and more models to help navigate these uncharted waters.

All of the above are putting greater and more significant strains on firms and regulators – all of whom are having to adapt their own business models and ways of working to facilitate reporting and regulating remotely.   But is the strain too much – will the current system be able to cope or do we need to look again at how we regulate UK plc’s financial system?

Now probably is an excellent time to consider the future nature of UK plc.  It is a good time to look at the way in which regulation and the regulators operate.   It is a good time to ask difficult and challenging questions and to potentially haul down some long held doctrines.

So how do we square this circle?   We need to be able to do more with less.

Less Regulation? Certainly – an obviously attractive solution would be to give in to the voices that want to strip back and reduce regulation.  Require less of firms and less of regulators – ease the burden and let the market regulate itself.   Except we’ve been here before and it didn’t end too well.

More Rigorous enforcement? Perhaps a counterintuitive argument that suggests that now would be a good time to sweep clean the system and purge it of all the firms who are not complying effectively with the regulations.  Leaving only the healthy and safe firms in place.  And whilst that has some long-term appeal it surely wont help reinflate the economy in the short term and therefore isn’t going to fly.

To be fair we think the devil lies in the detail of how the regulatory system works.  So we think the following would be good things.

Simpler regulation.  We know the current system is complex – and we think it would really help if the regulators did more work to simplify it – not least to rewrite the Handbooks and guidance into formats that don’t require an advanced law degree to understand them.    In our opinion, firms are often not following regulations because they either don’t know they exist and/or they don’t fully understand them.   We have recently carried out a series of detailed reviews of the arrangements of expanding firms against some of the FCA’s more complex regulations and guidance and it is no surprise firms are failing to comply when the legislation can be so difficult for firms to understand. 

Automated regulation.  We also know that the regulatory burden on firms is currently seeing greater and greater pressure being applied to understaffed risk and compliance, financial crime and data protection functions.  The cost of compliance continues to rise.  Surely now is an excellent time for both regulators and firms to look again at potential technology solutions to ensure that firms can better handle their regulatory obligations.   Firms have to find ways of reducing their cost of compliance without reducing the quality of their compliance arrangements.  We have recently seen firms look to reduce compliance, risk, financial crime and data protection headcount in order to reduce cost without finding new ways to meet the regulatory requirements.   This seems to us like a recipe for disaster especially when there are so many new pieces of regulatory technology coming to market.

Transparent Operations.  This is one that firms can really concentrate on.  It is inevitable that regulators will want to be able to assess and regulate firms in an increasingly “arms length” manner.   To make this possible they will require firms to be transparent in relation to how they operate.  Essentially this will mean that the regulators will want to be able to “see through” a firm’s arrangements.  They’ll do this by taking more and more “live data” and requiring more and more “automated reports” from firms.  Therefore, firms looking to get ahead should already be thinking about what data the regulators might require from them (now and in the future) and be thinking about how they can provide that data to the regulators in a way that is simple, rapid and direct.   This emerging regulatory requirement will undoubtedly require more technology based solutions to enable it.

So there you have it.  We do have genuine concerns that the current regulatory system is under severe pressure but we also think we can see ways through the upcoming challenges for firms.

If you would like to talk more about how your firm is dealing with compliance then please do get in touch at or via our website at

Specifically, we’d be delighted to host a “future of compliance” workshop with you and your teams to help you think through your future strategy.  If this appeals, then get in touch.

July 2020