Regulatory costs rocket 60 percent

BY Richard Summerfield

Expenditure for regulatory bodies in the US, UK and Hong Kong has increased exponentially in recent years, according to a new report from Kinetic Partners.

Since the end of the 2006-2007 financial year, regulatory expenditure across all three regions has increased 59.4 percent, at an average of 8.075 percent each year, says Kinetic's ‘Global Enforcement Review 2014’ report. This increase may be a result of the pressure placed on regulatory agencies to enhance scrutiny of the financial services sector following the financial crisis of 2008.

Kinetic’s research found that for the 2012-2013 financial year, the US Securities and Exchange Commission (SEC), the UK Financial Conduct Authority (FCA) and the Securities and Futures Commission of Hong Kong (SFC) had a combined expenditure of approximately $2.4bn.  This was over $900m more than the nearly $1.5bn total expenditure of the organisations before the onset of the financial crisis in 2006/07. In the report Julian Korek, Kinetic Partners’ chief executive officer, noted that the “disparity between expenditure and headcount could be indicative of a focus by the regulators to improve market surveillance by developing innovative technologies and hiring more experienced, specialised staff. For our clients across the banking, asset management and insurance sectors, we are seeing a mirroring of this investment in systems to monitor and report on transactions”.

According to Kinetic’s research the biggest increase in growth in expenditure between the SEC, the FCA and the SFC came in Hong Kong, where the SFC’s spending has increased by 120.2 percent in the last seven years. SFC spending rose from $69.25m during the 2006-2007 fiscal year to $152.50m by the end of the 2012-2013 fiscal year. Despite making smaller increases in spending than Hong Kong's regulatory body, the SEC and the FCA have both still made sizeable increases in spending since the onset of the financial crisis. The last seven years have borne witness to a 61.9 percent spending increase at the SEC and a 48.4 percent increase at the FCA.

Report: Global Enforcement Review 2014

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