The hidden costs of in-house compliance

Author:

Evelyn Lynch
Senior Director, Managed Services at Confluence

Many asset managers assume that handling compliance in-house is a cost-effective approach. However, rising regulatory complexity, evolving data requirements, and increased fines for non-compliance have revealed that in-house compliance can be unexpectedly expensive and time-consuming. Here, we explore the hidden costs of maintaining an in-house compliance function and why many firms are turning to managed services.

Increasing Regulatory Burden

Asset managers are facing an intensifying regulatory landscape with stricter requirements, shorter filing timelines, and heightened scrutiny. Evolving regulatory reporting obligations are demanding comprehensive data management and rapid submission. Recent Form PF amendments, for example, require more detailed data with increased filing frequency, forcing asset managers to improve data accuracy and speed. International regulations, such as MiFID II and AIFMD, add layers of complexity for firms operating across multiple jurisdictions.

Keeping pace with these evolving requirements requires constant monitoring, updates to reporting protocols, and dedicated resources—all of which strain in-house teams.

The True Cost of In-House Compliance

While asset managers may believe that an internal compliance team offers control and cost savings, they often underestimate the broader costs, such as:

• Technology upgrades: Compliance reporting increasingly demands sophisticated tools that automate data aggregation, enhance accuracy, and facilitate machine readable filings. Maintaining and upgrading these tools can be costly.
• Staff training: As regulations evolve, employees must undergo frequent training to stay informed about new requirements and technologies.
• Error-driven fines: Manual processes, data discrepancies, or missed deadlines can result in costly penalties and reputational damage.
• Resource drain: Allocating internal resources to compliance can divert attention away from higher-value activities like client service and investment strategies.

For many firms, these mounting costs far exceed the perceived savings of in-house compliance.

Risks of Manual Processes

Data accuracy is critical in regulatory reporting. Yet many in-house teams still rely on manual data entry and reconciliation, increasing the risk of errors that can lead to compliance breaches. Asset managers face particular challenges in aggregating data from multiple sources like custodians, brokers, and internal systems. These risks can grow when firms face different disclosure requirements in multiple regions, making data accuracy and precision crucial.

Managed Services as a Strategic Solution

Managed services can provide asset managers with a comprehensive compliance solution that addresses these challenges. Key benefits include:

• Reduced costs: By outsourcing specific reporting and other functions, firms avoid the substantial investment required to build, maintain, and upgrade internal compliance systems.
• Improved accuracy: Managed service providers utilize advanced data management systems that can automate calculations and help reduce human error.
• Regulatory readiness: Outsourced providers continuously monitor regulatory changes so their systems remain updated and compliant.
• Scalability and flexibility: Managed services can scale alongside firm growth, adapting to new regulatory requirements without extensive internal restructuring.

Future-Proofing Compliance with Managed Services

Outsourcing compliance functions doesn’t just solve immediate pain points—it also offers value by integrating data management, calculations, and dissemination into a simpler process. Firms that adopt managed services can more efficiently maintain compliance with evolving regulations, as managed service providers prioritize staying ahead of regulatory changes as their core business.

In addition, firms can leverage the provider’s technology and expertise since managed services combine purpose-built platforms with skilled compliance professionals. Furthermore, by shifting compliance burdens to experienced providers, firms can better focus on their core business activities—such as growth initiatives and client service.

Embracing Managed Services for a Competitive Edge

As regulatory demands increase in complexity and frequency, asset managers must reconsider the cost and risk of maintaining in-house compliance. Managed services offer a streamlined, cost-effective alternative that reduces resource strain and enhances compliance readiness. By embracing outsourcing, asset managers can better position themselves for growth, scalability, and long-term success in an evolving regulatory landscape.

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About Confluence

Confluence is a global leader in enterprise data and software solutions for regulatory, analytics, and investor communications. Our best-of-breed solutions make it easy and fast to create, share, and operationalize mission-critical reporting and actionable insights essential to the investment management industry. Trusted for over 30 years by the largest asset service providers, asset managers, asset owners, and investment consultants worldwide, our global team of regulatory and analytics experts delivers forward-looking innovations and market-leading solutions, adding efficiency, speed, and accuracy to everything we do. Headquartered in Pittsburgh, PA, with 700+ employees across North America, the United Kingdom, Europe, South Africa, and Australia, Confluence services over 1,000 clients in more than 40 countries.

For more information, visit confluence.com