Managing Compliance Costs in Financial Services

Compliance costs have become one of the biggest risks for banks, especially as they work to meet the ever-changing regulatory demands. In this video, Roger Binks from Kani and Otto Benz from Nationwide Building Society discuss how underestimating the ongoing expenses of staying compliant can have serious repercussions for financial institutions. While building a payment reporting tool or system might seem like a manageable project at first, the hidden costs associated with the long-term maintenance and updates required to keep up with the regulatory environment are often underestimated. As Mick Fennell from Temenos points out, firms need to be honest with themselves about whether they’re building a tool to simply meet compliance or if they’re running a business. If it’s the latter, the resources required to support such a system are considerable and should not be overlooked.

One of the primary risks that banks face today is the potential cost of compliance and the complexity involved in choosing between buying or building solutions. In the UK, for example, banks must also consider the Bank of England’s impact tolerances regime, which sets strict expectations for resilience in critical business services like payments. This regulation ensures that institutions can recover and continue operations swiftly in the event of an issue, often within a few days, rather than weeks or months. For financial institutions, this means that when it comes to selecting a vendor or partner, it’s not just about the price or functionality; it’s about considering how the partnership will hold up in a crisis and whether the systems in place are resilient enough to meet those requirements.

When deciding whether to buy or build solutions, banks must also take into account the potential risks of vendor failure or the need to change partners. Given the critical nature of payments in the financial ecosystem, banks must have contingency and disaster recovery plans in place. This includes developing a clear exit strategy and understanding how a partner or vendor will handle situations where they may fail to meet expectations. Cloud solutions are often part of this equation, and while banks may rely on a single vendor or platform, they need to prepare for scenarios where that vendor may no longer be available. This additional layer of complexity and risk is why buying a solution, while initially seeming simpler, can actually come with significant hidden costs over time.

Firms also need to think strategically about how to manage these compliance costs, especially as they scale. Moving from manual systems or ad-hoc solutions to more comprehensive, integrated platforms can help reduce long-term costs and improve efficiency. However, managing multiple cloud solutions and different vendor relationships can complicate the process further, leading to higher operational expenses. The key to minimizing these compliance costs is choosing the right vendor or partner who understands the specific regulatory environment and can deliver scalable, secure solutions that evolve with the changing landscape.

Ultimately, managing compliance costs effectively requires careful planning, a solid understanding of regulatory expectations, and the right technology to meet those challenges. Whether building or buying solutions, banks must take a long-term view and consider the full scope of costs, risks, and opportunities before making decisions. The financial services industry is at a crossroads where technology and compliance must work hand in hand, and those who adapt will be best positioned to succeed in the future.