• Jason Tan, Partner |

Every day across the world, companies walk a delicate tightrope - if they fall off one side of the rope, they might find themselves in trouble with regulators, but if the balance tips in the other direction, the burden of compliance can have a negative impact on the business.

This challenge looks set to intensify, with a growing trend across multiple jurisdictions for increased scrutiny from tighter regulations, which may in turn be open to different interpretations.

So how can financial institutions meet changing compliance requirements while still keeping the business alive?

Managing the volume of regulations

Operating in a regulatory environment of increasing scrutiny means staying abreast of any changes to existing regulations and being aware of new regulations as soon as they are passed and come into force. Most jurisdictions make regulations and regulatory updates readily available, but it can still be an overwhelming task to keep up with the changes and they still need interpretation and understanding so companies know what they need to do. The task of keeping themselves up to date can easily snowball when companies do business in multiple markets.

This is where KPMG professionals come in - they can play an important dual role in the ecosystem by helping clients with regulatory compliance and, at the same time, assist with promoting understanding of the regulations. An educated, aware client can operate more effectively - and ultimately more profitably - than an organization that is not up to speed with all relevant new and amended regulations. KPMG firms use their experience to help clients strike the all-important balance between meeting regulatory requirements without pushing these requirements to revenue-stifling extremes. Compliance costs should not be so burdensome as to actively harm growth and profitability. Technological solutions, such as artificial intelligence (AI) applications are a worthwhile investment, but I believe their effectiveness relies on domain professionals, who are able to intervene when possible compliance issues are flagged.

Compliance versus costs

There is the danger, however, that any amount of increased compliance investment may simply seem too costly for the C-suite to bear. But senior leaders should understand that non-compliance or lax compliance is generally a false economy. A hefty fine can easily wipe out any perceived cost benefits of not spending enough on compliance, as well as damaging the company's reputation, which can be just as hard to recover from as a stiff financial penalty. Equally, the cycle of getting caught out by regulators, temporarily improving compliance until the pressure is off, relaxing compliance to save money and improve profitability, then breaching regulations again when the compliance team is unable to cope with the workload that increases with growth is not an effective way to do business.

To understand and accurately interpret regulations, I believe companies should understand the spirit of the requirements as well as the basic actions that need to be taken for effective compliance. KPMG professionals can provide support and expertise to help leaders manage the risks affordably. Finding the balance between the extremes of reckless non-compliance and onerous overcompliance is a challenge. But with the right advice and investment in a good compliance team and compliance technology, such as AI solutions, companies can be confident they are meeting the regulatory obligations without taking a hit to the bottom line.

Read additional blogs in our Financial Crime series.

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