AMERICAS +1 203 205 2700 EMEA +44 (0) 203 725 6007 APAC +61 (2) 905 58009

Operational Control- The Challenges of Regulatory and Portfolio Compliance


The global financial crisis of 2008 initiated a greater need for investment managers to implement compliance controls when looking to attract institutional investment. Though the most commonly recognized consequences of non-compliance are heavy fines; there are other extremely significant financial, personal, operational and regulatory repercussions.

It was recently announced that five of the world’s largest banks are currently facing criminal charges and a $5 billion fine over rigging of currency markets.1

According to Thomson Reuters2 fines levied by regulatory authorities in the United States increased 50% between the years 2008 and 2013.  In some cases, companies have exited a particular business line; thereby placing themselves at a competitive disadvantage, due to the financial impact of the imposed fines.  Other financial consequences may include a negative impact on share price, fines on individuals, and even a mandated increase of capital, liquidity, or solvency requirements.

Business Staffing Consequences

Business staffing consequences are also common when non-compliance occurs such as the need for compliance professionals with more expensive risk and compliance skills, higher priced human resources, senior management changeover and potential bonus claw-backs.

A separate Thomson Reuters report3 cited that 59% of all respondents expect the personal liability of compliance officers to increase in 2015, with 15% expecting a significant increase, compared to 20% Of Systemically Important Financial Institutions who expect a significant increase in personal liability.

Operational Consequences

Operational consequences often include a mix of time-consuming remedial actions to correct the problem, costly consultant engagements, and challenges with hiring the right talent.  In late 2013, it was reported that JPMorgan intended to spend an additional $4 billion and commit 5,000 extra employees to clean up its risk and compliance problems. As part of a company-wide effort, it was estimated that the bank was to spend an additional $1.5 billion on managing risk and complying with regulations, including a 30% increase in risk-control staffing. This is a large price to pay for a preventable non-compliance problem.

Regulatory Consequences

Regulatory consequences can result in greater scrutiny and complexity through added regulations. Many of these regulations require that managers provide extensive data for official research and review of adherence.  Having the right technology infrastructure can be key in culling the necessary data to provide to the governing regulatory bodies for review.

Finally, there is the concept of operational compliance that managers deal with daily.  Many of their clients will impose restrictions on what types of securities can be held within their portfolios, position concentration limits within portfolios, as well as specific weighting of securities in the portfolio.  Even more difficulty is introduced when managers need complex filtering or even compound compliance rules to meet investor requirements.  Overall, meeting these growing requirements can result in an operational challenge for many investment managers.

The managers that utilize a technical infrastructure with flexibility to meet those ever-changing needs and requirements can stay one step ahead of their competition and ensure that they are compliant.




1 – The Compliance Exchange: December 8th, 2015 by Reuters.

2 – Thomson Reuters: November, 2014. “The Rising Costs of Non-Compliance: From the End of a Career to the End of a Firm” by Stacey English & Susannah Hammond.

3 – Thomson Reuters: 2015. “Cost of Compliance 2015” by Stacey English and Susannah Hammond.