Internal compliance costs surpassing $1m annually for licensees
High compliance costs are not just limited to the largest licensees, with financial services law firm Holley Nethercote finding 13 per cent of firms with less than 100 staff are spending over $1 million in internal compliance.
A survey of over 200 Australian Financial Services or credit licensees (AFSL/ACL) has found they are spending hundreds of thousands of dollars each year on external and internal compliance resources.
Some 13 per cent of firms with less than 100 staff and representatives are paying over $1 million annually in employing compliance staff including salaries and contract fees. A further 45 per cent of firms of this size are spending between $500,000 and $1 million.
As well as this, firms are also needing to spend externally with a quarter of small firms spending more than $500,000 on external assistance, rising to 44 per cent for firms with over 100 staff and representatives.
The research has found 183 AFSLs and 41 ACLs found legal, audit, IT, and compliance are the most common areas where firms are seeking external assistance.
Some 75 per cent sought external help on legal matters, 60 per cent on audit, 52 per cent on IT support, and 41 per cent used a compliance consultant.
Looking at issues, 41 per cent are seeking help on breach reporting, 35 per cent on licence authorisations, and 25 per cent on product design and distribution. When looking at wholesale licensees, licence authorisations rose to 65 per cent.
Financial advisers specifically are also seeking help on ongoing fee arrangements and documentation.
The majority of respondents are spending between $100,000 and 500,000 each year on their internal compliance staff and then adding on external compliance costs.
“It appears that external resourcing in compliance is a critical issue. Three out of every four firms sought legal advice. Product providers and wholesale licensees sought the most advice with approximately 90 per cent needing support,” it said.
“Most licensees are spending $100,000 to $500,000 on internal compliance and a similar amount is being spent on external compliance.”
Holley Nethercote broke it down by the number of representatives and staff at a firm and their annual external and internal costs. This included all staff, all representatives, and authorised representatives.
| Representatives and staff | Percentage spending over $100k annually on internal costs |
| 1-5 | 28 |
| 6-15 | 57 |
| 16-50 | 84 |
| 51-100 | 100 |
| 100+ | 100 |
| Representatives and staff | Percentage spending over $100k annually on external costs |
| 1-5 | 13 |
| 6-15 | 38 |
| 16-50 | 29.4 |
| 51-100 | 78.9 |
| 100+ | 72 |
However, the law firm noted, the costs could rapidly add up, not just for large firms but also for those with less than 100 employees.
| Representatives and staff | Percentage spending over $1m annually on internal costs | Percentage spending over $500k annually on external costs |
| 1-5 | - | - |
| 6-15 | 3 | 3.5 |
| 16-50 | - | 5.9 |
| 51-100 | 10 | 15.8 |
| 100+ | 53 | 44 |
AUTHOR
Laura Dew
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