Macquarie compliance cost explosion

This increased cost of risk management and compliance is an integral part of a properly regulated financial institution, Chief Executive Shemara Wikramanayake said.

She says banks must not only pay the price to meet regulators’ demands, but also meet community expectations.

She adds that the cost will increase as Macquarie grows. One of the perverse effects of this growth is that by this time next year, Macquarie will be spending more on compliance and risk management than on technology investments.

“It grows with our company footprint as we enter new markets,” says Wikramanayake. “But it is also growing as the community expects more and more from organizations.

“So financial crime risk, anti-money laundering, anti-bribery and anti-corruption, cyber risk, there’s no end to the kinds of things that we have to step up and make sure we protect ourselves.”

It was in tribute to the quality of Macquarie’s risk management systems that it closed its office in Russia in 2018 and has limited exposure to China – a geopolitical hot spot in the making.

Peter Warne, who steps down as chairman of Macquarie next week after 15 years on the board, said the huge volume of information presented to directors is impossible to convey in narrative form.

changing landscape

This has forced the typical 1000-page advice documents found in major banks to evolve into much more visually friendly documents that dissect information and present it in a much more digestible form.

“It’s a challenge, for sure,” he says. “These days, board documents come in the form of PowerPoint presentations, dashboards and that sort of thing, so they’re a bit quicker to get through.

“But the problem is that it’s a real challenge to get the information that the board needs in a comprehensive way that the board can get in a reasonable amount of time.

“I mean, reading 1000 pages of narrative is almost impossible, I would say.

“It’s a real challenge for our leadership when putting together board documents to make them really incisive – to cut to the chase.

“The real challenge is that we need to get less data and more information. We continually bark at our direction to make sure that happens.

Warne, who will be replaced as chairman by former Reserve Bank Governor Glenn Stevens, says the challenge for directors is not just to look at areas where there might be compliance issues, but also to anticipate problems.

“It is the individual businesses and the compliance that comes with them that have [become] more complex and more demanding,” he says.

“And then the size of the companies and the scope of the company … also increases. It comes from both angles.

Wikramanayake says community expectations around sustainability and ESG have added another layer of complexity, which increases compliance costs.

“There are now all the net zero reports that we have to do in chapter and verse, there are reports on modern slavery, occupational health and safety and customer analysis,” she says.

“It’s a wide range of non-financial risks that we invest in. But it’s an expectation of us doing business and also a lot of it…improves the way we do business.”

Warne says regulators want more and more information about what’s going on inside the company.

“There’s an enormous amount of analysis that management has to do and provide us with that information to say if we’re compliant and if we’re falling behind somewhere, what are we doing about it?” he says.

“It’s an ongoing process. And, of course, as technology improves, the ability of regulators to seek out more information about our business increases, so they can analyze it as well.

“The amount of not just compliance, but also business analytics that our regulators want to see, also continues to grow.”

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