I was asked recently by a business school graduate, “How do you become a compliance officer? They didn’t offer specific courses on fighting financial crime at our university, nor did I realize this could be a career choice." The same holds true for the three-year German apprenticeship to become a banker. With questions like that floating around unanswered, it’s not entirely surprising that there is a shortage of skilled resources available in the market. 

Sometimes, this shortage becomes painfully apparent; an example is when the regulator mandates that a financial institution start a lookback project (reviewing past transactions over a specified time period across its customer base, to identify any transactions that might indicate a suspicion of sanctions violations or money laundering have been missed). Usually, this is done as part of a more extensive remediation program, but in the day-to-day compliance operations of onboarding new customers and reviewing existing accounts, shortages can quickly amount to unwieldy workloads. 

The imperative of having the flexibility to manage these surges and have well-trained compliance staff on call has never been more acute. Industries continue to grapple with a labyrinthine web of regulatory frameworks and technological advancements, and all the while, the scarcity of qualified experts in this field continues to grow. This scarcity not only inflates the cost of hiring and training but also necessitates a perpetual cycle of education to navigate the increasingly specialized terrain of compliance. Both neo-banks and traditional banking organizations often struggle to find the right balance between determining the risk appetite and meeting compliance demands. 

Did you know that talent – getting, developing and keeping it – is ranked as the biggest internal challenge for regulatory compliance? (HFS Research)

In addressing the need to unearth these elusive compliance experts, a compelling argument emerges for outsourcing to managed services companies. Such entities offer a pragmatic solution, leveraging economies of scale to furnish specialized talent at a fractional rate.

Moreover, their regional knowledge proves invaluable in navigating the diverse regulatory landscapes across the globe. This strategic alignment with external partners not only mitigates the risks associated with an understaffed and overworked compliance department, but it also positions organizations to capitalize on potential tax benefits, transforming compliance from a mere operational expense to a strategic investment, akin to “pay for what you need.” Herein lies the inherent flexibility of outsourcing compliance functions: the ability to swiftly mobilize resources and expertise to address acute compliance challenges.

To get more insight, I spoke to Ferko Spits, SVP Managed Services at AML RightSource: 

Q: Ferko, why do financial institutions currently engage with managed services providers? 

A: Mostly because they have to quickly provide resources to manage urgent compliance requirements, such as lookbacks for KYC or AML, mandated by the regulator, so enforcement actions are always a big driver. 

Q: With increasing pressure on cost and compliance, do you think this will change going forward? 

A: AML RightSource recently conducted a study with HFS and while the financial institutions typically work with managed services providers on a project basis, responses indicate that about 30% will shift to permanent outsourcing arrangements over the next two years. 

Q: What are the drivers behind this trend? 

A: Interestingly, it is not just cost pressures but the move towards tech-enabled managed services. Skilled and trained staff are already hard to find in the market, and rising knowledge requirements for AI, automation or crypto-AML add to the pressure financial institutions are dealing with. So, while only about 18% of the compliance leaders we spoke to are using AI and automation today, they expect the increasing sophistication of laundering techniques and real-time and digital banking will necessitate the use of AI and automation, and they expect workloads to grow at least 30% over the next two years.  

Q: Does that include crypto? 

A: No, crypto is another area where we see a lot of demand in the next few years. Regulators are getting tougher across the globe with pure crypto providers, but the most critical part, in my view, is the intersection of crypto to fiat currency. If financial institutions want to do business in this area or with exchanges, they need to know about systems such as Chainalysis, CypherTrace, Elliptic, TRM Labs, etc.

Q: Do you know anything about these? 

A: I only know as much as I need to know, but AML RightSource has trained resources, and we have a train-the-trainer program for new projects. We already provide services to several well-known crypto businesses.  

Thank you, Ferko. 

The regulatory landscape is one defined by volatility and uncertainty. The question remains: Should banks be preoccupied with the recruitment, training and retention of compliance staff and data analysts, or is there merit in entrusting at least some of these functions to external partners? The answer, it seems, lies in a judicious balance between strategic vision and tactical agility.