Financial firms spend big to avoid costly gaffes: Greenwich

Firms in the financial sector are investing heavily into compliance measures designed to prevent the kind of misconduct that could lead to costly reputational damage, according to Greenwich Associates.

Based on surveys carried out in the second quarter, the firm reported that nearly 70% of asset management industry compliance officers expect their budgets to grow in the year ahead.

It was also reported that annual spending on surveillance technology rose 17% in 2020, and is expected to rise by almost 25% this year to US$1.5 billion.

These investments are aimed at preventing misconduct, to ensure that firms don’t “put their reputations and businesses at risk,” Greenwich said.

The research firm suggested that global asset managers would be at risk of losing up to 20% of their assets under management, if they suffered either a major governance issue or compliance lapse.

“Assuming 1% fees on roughly US$112 trillion … in global AUM that suggests nearly US$225 billion in fees are at risk in the asset management community alone,” the firm said.

The firm also noted that the importance of compliance will only grow, as ESG standards become increasingly important to both investors and consumers.

“For all financial service firms, promoting ethical behavior is key, but providing employees with a supportive compliance infrastructure is the crucial step,” said Danielle Tierney, senior advisor in the Coalition Greenwich market structure and technology group.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.