Written by Claudia Ting
Financial Institutions (FIs) in Singapore are strictly regulated by the Monetary Authority of Singapore (MAS) to carry out regulated activities such as investments and advisory. These regulations ensure that appropriate risk management measures and practices are adopted for the protection of investors. This, in turn, has created a sustainable financial industry and made Singapore a global financial hub.
These regulations entail FIs’ compliance with existing laws and regulations, and comprise of stipulations and limits, some of which are statements in the form of regulatory filings. These requirements are only a portion of the ever-evolving regulatory framework in Singapore faced by Fund Managers and other FIs. The ongoing Anti Money Laundering (AML)/ Countering the Financing of Terrorism (CFT) & Client Due Diligence (CDD) measures adopted by FIs must constantly reflect the ever-changing nature of this regulatory environment.
As a result, FIs are looking for improved means of handling business-specific compliance issues, through increased automation, bettering performance, streamlining processes and increasing transparency. Failure to comply with regulatory requirements may result in regulatory fines, risk of adverse reputation, growth and sustainability of FIs and the industry as a whole. Worst of all, the foundation of trust built with investors would be irreparable. MAS has imposed high penalties for -non- compliance with AML/CFT requirements. For the failure of disclosing shareholding interests, an investor was fined $200,000. In another case, a FI received a $400,000 penalty for failure to exercise sufficient oversight in ensuring effective AML/CFT controls, which ultimately exposed this institution to high risks for AML/CFT activities. Consequently, an increasing number of FIs are starting to realise the importance of cultivating a risk-aware culture and a responsive first and second line of defence, in order for them to continue growing their status as part of a leading financial hub.
Many FIs have had to bear high compliance costs while managing the need for constant monitoring of the dynamic compliance landscape, leading to increased overall operational costs. While compliance may not be a business function that generates revenue, it is a fundamental element in managing occupational risk and executing business strategies successfully. A strong compliance arrangement will lead to increased efficiency, which will ultimately result in reduced costs.
The increasing amount and complexity of regulations, constant lack of talent, and continuous pressure from shareholders to lower operating costs are only a few reasons of many to consider outsourcing your compliance function. Here’s how outsourcing compliance can help you focus on your business’ core offerings:
- Ensures compliance to regulations
Keeping up with the rapidly evolving Singapore compliance regulatory framework can be challenging for in-house risk and compliance executives, who have to keep informed of these changes on top of other compliance-related duties and obligations to their parent companies.
Compliance firms can supply detailed and consistent lower-level analysis and screen large data sets for potential red flags and other laborious tasks. FIs are also able to take comfort in knowing that their external compliance expertise will be immediately available, if required. They can also take comfort in the fact that their compliance service provider will be constantly recommending improvements and sharing best practices to FIs compliance function, based on its experience with many other clients and what is best for each client.
- Saves cost and time
Outsourcing your compliance can equate to a lower cost compared to hiring risk and compliance professionals in house. According to Think Advisor, broker dealers and advisors who outsource compliance functions have reported substantial cost savings of approximately 26% compared to handling compliance in-house. Due to economies of scale and clear operational focus, this also means that outsourced compliance can be engaged at very competitive rates.
In addition, you will not have to worry the hight turnover affecting your company’s compliance function, as your company’s compliance duties will be carried out by a fully staffed organisation, instead of a couple of in-house employees that could leave at any time. Outsourcing compliance will also enable your firm to stay on top of ever-evolving compliance regulations, enabling FIs to focus on their key business operations.
- Access to Compliance Systems and Talent
Outsourcing compliance provides companies access to technologies used for compliance analytics and removes the costs involved to develop them in-house. This is especially useful for midsized companies. Due to the demand for compliance systems and talent in-house, the costs for maintaining compliance infrastructure have increased. Many organisations also face difficulty in filling posts in their internal compliance teams, due to a shortage of talent and skills in this discipline. Outsourcing compliance enables organisations to build a fully resourced and skilled team to cater to their compliance needs, alleviating pressure on internal teams and enabling better efficiency for an organisation’s compliance function.
External providers will also ensure that organisation compliance is managed in a high standard. This is because they focus on maintaining the required knowledge as their main offering and they are often staffed with former regulators, compliance officers and developing talent pools that are industry-aligned. More importantly, compliance firms are able to offer their process frameworks and expertise from providing similar services to other clients, ensuring that an organisation compliance is well handled.
In conclusion, an increasing number of organisations are outsourcing their compliance to manage the growing complexity and number of regulatory requirements. While establishing a successful relationship with an outsourced compliance provider may not be an easy process, FIs can take comfort in knowing that their organisations will stay in compliance with regulations by outsourcing their compliance to an experienced service provider. Credence Consulting is here to help you find a suitable compliance arrangement to cater specifically to your organisations compliance needs. In Credence Consulting, we have a team of specialists with extensive experience and exposure in Compliance related work. Please feel free to get in touch regarding any queries in relation to outsourcing or any regulatory compliance challenges you may face at email@example.com.