Cost of business regulation yet to peak as budgets keep rising

Business spending on regulatory compliance will continue to rise due to concerns about reputational risk and increasing corporate fines, new research has found.

A survey of UK businesses commissioned by Pinsent Masons show that almost three-quarters of the compliance professionals surveyed expect their regulatory spend to increase over the next five years.

The vast majority (86 per cent) of those predicting an increase in 2016 expect to see their budgets boosted by up to 20 per cent.

Over two-thirds of respondents expect to see board interest in compliance increase over the next 12 months in the wake of scandals such as LIBOR and vehicle emissions-rigging.

The potential for reputational damage to a business was seen as the biggest risk factor prompting board-level executives to take an interest in regulatory issues, followed by corporate fines.

The sheer volume of regulation was found to be the most significant challenge in compliance. Shifting or unclear guidelines and regulations are the next biggest hurdle, while cross-border compliance with different regulatory regimes is third.

While there is increasing concern about regulatory risk and a recognition that compliance expenditure will continue to rise, over half of respondents did not have specific budget allocation for compliance systems and processes.

Tom Stocker, a partner at Pinsent Masons, said: 'The majority of a company's compliance expenditure will be on employing compliance and legal personnel. Spending more money on personnel is not the only or necessarily the best approach.

'The research revealed that greater efficiencies could be achieved through a mix of internal compliance resource and the strategic use of compliance technology and outsourced services.'

Stocker expressed surprise that around a quarter of respondents said their compliance regime was entirely manually administered, with no electronic, platform-based or other automated solution involved.

'That is not efficient,' he said. 'It means that clever compliance and legal personnel are spending their time carrying out administrative processes which an IT tool could perform or which could be outsourced thereby freeing up in-house personnel to be focussed on strategic risk management.'