Navigating compliance demands: insights from SuperReturn CFO/COO

I recently had the privilege of moderating a panel at SuperReturn CFO/COO, a leading private equity, private credit and venture capital event providing a place for C-suite and senior professionals in finance and operations to connect.

During the panel, I tackled one of the most pressing issues facing asset managers today: dealing with rising compliance demands driven by evolving regulations and market dynamics. Our esteemed panel featured industry leaders, including Mark Baak, Director of Privium Fund Management, Leonie Mekel, CFO of SET Ventures; and Lionel Schreiber, Group CFO at Kharis Capital.

Together, we explored the pros and cons of outsourcing critical regulatory functions.

The compliance landscape

We started the discussion by acknowledging the increasingly complex compliance requirements that asset managers must navigate. In-house compliance teams are under immense pressure, which can lead to heightened risks. Such risks can jeopardise not only operational integrity but also the reputation of the firms involved. As regulatory landscapes evolve, the stakes have never been higher.

Drivers for outsourcing

As we delved deeper, the conversation naturally gravitated towards the challenges that prompt firms to consider outsourcing compliance functions. A chronic shortage of compliance talent, coupled with rising costs of technology and the need for effective cost control, has made outsourcing an attractive solution. In the UK, it’s estimated that the cost of being regulated by the Financial Conduct Authority (FCA) is at least £250,000 per annum. However, by becoming an appointed representative under a regulatory umbrella like IQ-EQ, firms can potentially reduce this cost by half.

Experiences with outsourcing

Our panellists shared their experiences with outsourcing, illustrating how it has allowed them to concentrate on their core activities—such as fundraising and deal sourcing—while leaving compliance to the experts. While there is potential cost savings associated with outsourcing, such as significant reductions in regulatory expenses, it’s crucial to partner with trusted providers who understand the complexities of compliance. This relationship can help mitigate risks that arise from inadequate in-house expertise.

Risk assessment

The discussion also underscored the importance of a risk-based approach when considering outsourcing. While it’s true that any compliance failure can have severe consequences, the key takeaway is that firms should leverage external expertise in areas where they may lack sufficient internal resources. This strategic alignment can enhance compliance effectiveness while minimising potential pitfalls.

Keys to successful outsourcing

To wrap up, we identified essential factors for successful outsourcing. Selecting a reliable partner with sufficient scale is critical to avoid key person risks, and maintaining a manageable number of outsourced relationships can streamline operations. Importantly, firms must invest time and flexibility into the outsourcing process to ensure it aligns with their evolving needs.

A recent survey of over 500 UK regulated firms revealed that 36% faced regulatory compliance penalties within the past year. This statistic highlights the pressing need for robust compliance strategies. By outsourcing to specialists, firms can significantly mitigate the risks associated with compliance while positioning themselves to thrive in a challenging regulatory environment.

Ultimately, the decision to outsource compliance functions is not just a cost-saving measure; it’s a strategic imperative that can bolster a firm’s operational resilience in today’s complex landscape.

About the author

Rachel is Managing Director for IQ-EQ’s UK Regulatory & Compliance Solutions, based in London. She has over 25 years’ experience leading financial services and professional services businesses with specialist knowledge of regulation and compliance.