The Cost of Regulation 'May Hit Pounds 50bn by 2010' COMPLIANCE

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Byline: By John Cranage Business Staff

The world's leading 100 financial institutions have seen the cost of complying with regulations soar by more than 30 per cent in the past three years to an estimated pounds 28 billion in 2007, according to a new report by business advisory firm Deloitte.

And with the cost of regulation yet to peak, Deloitte is predicting that the governance and control bill could hit pounds 50 billion by 2010.

And that is even before the cost of any new regulation introduced in response to the current credit crisis is counted, the firm says.

Despite growing legislation, however, a new report by Deloitte, entitled In Control?, finds that the cost can only be fully effective if institutions connect their risk management and controls, and the governance of the two. "It appears that a prime feature of the recent losses incurred by major banks in the credit crunch was the inability, in many instances, to link risk and control factors together," said Matt Perkins, financial services partner at Deloitte in Birmingham.

"Financial institutions are always seeking to find and sustain the correct balance between risk and reward, but this lack of triangulation between control, risk and governance is, in most cases, a missing link which needs joining up.

"Current market dynamics dictate that there are few more vital issues for financial institutions to address than risk appetite, governance and control.

"Such systems set few hearts racing until it is often too late, yet they are increasingly determining the winners and the losers across the global financial services industry.

"Governance and control systems need to be right at the top of the corporate agenda, as they are likely to play a central role in the individual success or failure of senior executives." Deloitte's report also recommends that institutions need to stop viewing regulation as an unavoidable burden and start to consider compliance and competitive advantage in the same sentence. …