October 5, 2021 | Stamford, CT — Financial service firms are making major investments in the policies and technology platforms required to prevent ethical lapses that put their reputations and businesses at risk.  

Global asset managers risk losing up to 20% of assets under management if faced with a major governance or compliance lapse, according to new data from Coalition Greenwich. Assuming 1% fees on roughly $112 trillion dollars in global AUM that suggests nearly $225 billion in fees are at risk in the asset management community alone.

As markets and investors focus on company behavior and the values they represent, financial industry compliance capabilities are taking on a new and important role.  Robust compliance will become more critical in the near future as environmental, social and governance (ESG) standards play a bigger role in determining how consumers and investors perceive corporate brands. 

“For all financial service firms, promoting ethical behavior is key, but providing employees with a supportive compliance infrastructure is the crucial step,” says Danielle Tierney, Senior Advisor in the Coalition Greenwich Market Structure &Technology group and co-author of Conduct and Compliance: The Return Potential of Proactive Risk Management. “However, even firms with strong cultures and formal policies can get tripped up by technology as many operate on a web of legacy systems not fully migrated.”

These risks, highlighted by the COVID-19 crisis, are prompting many firms to make urgently needed investments. Nearly 70% of buy-side compliance officers expect their budgets to grow in the coming year. In addition, market-wide budgets for surveillance technology were up 17% in 2020 and expected to grow by almost a quarter in 2021 to $1.5 billion. 

“The strategic case for modernizing compliance platforms is clear,” says Danielle Tierney. “The good news is that this is no longer a technology problem. The technology to achieve these goals most certainly already exists and it is now up to the market to recognize the value of moving forward.”

The new Coalition Greenwich report, Conduct and Compliance: The Return Potential of Proactive Risk Management, examines how financial services firms are working to encourage an ethical cultural, the reasons why it matters, the challenges faced in implementing processes to encourage that cultural shift, and steps being taken to improve legacy approaches.