While some financial institutions outsource compliance duties, delegating such tasks comes with certain risks that need to be thoroughly thought through, as even the slightest disconnect with outside partners could have a potentially harmful impact.
The list of regulatory requirements for financial institutions (FIs) continues to lengthen as a reflection of increasing cyber threats, the sector’s rapid expansion, and other key variables. Adding to the list is anti-money laundering (AML), as measures to safeguard this cornerstone of modern-day compliance are quickly becoming more robust.
This has encouraged some market players to consider—or fully move to—outsourcing compliance experts to stay up to date with new standards and ensure timely regulatory policy changes. While contracting out certain functions may turn out to be beneficial, there are several dangers that need to be considered as well.
During the pandemic, there was a significant jump in risk and compliance outsourcing, as the financial sector underwent major changes to accommodate new market habits with high expectations to maintain operational resilience. As continued interest remains, Thibaud Catry, Chief Compliance Officer at ConnectPay, noted ensuring compliance partner compatibility and synergy between in-house and outside experts as key challenges to consider when hiring external help.
“Compliance is tightly knit with company’s key processes; thus, every outsourcing partner must be carefully assessed, because if they are not up to the task—the company still bears the regulatory liability,” the expert shared. “Also, the team needs to be in constant sync with external experts so it can efficiently deliver, adapt and support the business. Having even the slightest disconnect can drastically slow down the company’s initiatives and, in worst cases, completely jeopardize its strategy.”
While for some it might be seen as a cost-saving solution in regard to required personnel and necessary training, the reality is far from it. According to Catry, companies usually come back on their decision to outsource within 2 years or less. Thus, in the end, businesses might spend even more going back-and-forth than they would have if they had focused on building an in-house team from the start.
Keeping matters internal gives additional reassurance for customers as well, making sure their assets are secure and not subject to third party liability. According to Catry, this, among several other reasons, has led to ConnectPay deciding to keep compliance in the hands of in-house experts.
“Retaining focus on attracting talents and constantly investing in them, rather than outsourcing, can help build a very strong advantage, keeping in mind the market competitiveness for such specialists,” he explained. “Furthermore, we put compliance at the heart of our strategy as well as involve its functions in all our business decisions, and the best way to do it is have our compliance teams in-house.”
In some limited scenarios, it might be beneficial to contract out more operational tasks, e.g. recordkeeping or data entry. Also, in some markets, where the resources are scarce, external help can bridge the gap to accessing relevant knowledge to ensure business continuity. However, in the end, the decision must be calculated, and the outsourcing partner – extensively researched, especially for the up-and-comers.
“I tend to think that newly established companies shouldn’t take the decision to outsource their compliance, rather hire experts with necessary knowledge to lay down the groundwork for an internal framework. Ultimately, this will set the tone the way the entire business is conducted in the future,” Catry concluded.
