‘The age of the regulator’: Compliance to get harder

The study, which is based on discussions with senior executives from large institutions and data from the Governance Institute’s 2019 Risk Management Survey, revealed that regulatory reform or legislative change is almost unanimously considered the biggest risk “right now, across the next 12 months, and the next three to five years”.  

Less than one in three, or 30 per cent, of governance respondents stated that they were “well prepared” or “very well prepared” to face the challenges of the future, while 9 per cent admitted they were not prepared.

“It is clear that most governance professionals believe they will be dealing with the fallout of this year’s enormous regulatory changes for the foreseeable future,” Megan Motto, CEO of the Governance Institute, said.

“This has been driven by the financial services royal commission and other changes such as the Banking Executive Accountability Regime (BEAR) and the newly revised ASX Corporate Governance Principles, which now demand in-depth assessments on non-financial metrics, such as diversity, environmental sustainability and culture.”

Ms Motto continued: “What is interesting is that this effect flows on beyond the financial sector and into all Australian organisations, regardless of size or industry. They all expect additional regulatory scrutiny and compliance burdens, especially amongst the next generation of governance professionals.”

The report quotes Deidre Wilmott, a non-executive director at Australia Post, who said that “we are in the age of the regulator” and so compliance will be a significant ongoing issue for company boards. 

“Once a regulation is there, it is very hard to get it taken away. In some instances, people are themselves benefiting from it and politicians don’t want to be in a position where they have to explain why banks or other large corporates should be subject to less regulation than before,” Ms Wilmott said, according to the Governance Institute’s report. 

She also noted that the community does not want regulators “to deal amicably with [institutions]” and expects to see misconduct made public, prosecuted and punished.

Some research participants said they expect the BEAR to be extended beyond banking and into other sectors, while others believe that company secretaries will play an important role how and where compliance failures will become an issue for companies and boards. 

Company secretaries to become the board’s ‘moral compass’ 

According to the report, a company secretary could even become the “conscience” or “moral compass” of the board or its “chief ethical adviser”. Their role could evolve from taking minutes and collating and supplying information to being a “thought leader”, “guiding the board”, “stimulating wider thinking by proactively raising the right questions”. 

“Working with the chair, company secretaries will help develop a healthy board, which, in turn, will help develop a healthy organisation. Their role will move from just ‘legalistic paper pushers’ to a much more developmental role,” Professor Bob Garratt said, according to the Governance Institute report. 

As the role of board directors becomes more complex and time-consuming, companies might also need to limit the number of board appointments, the report suggested. 

“There may be a stronger focus on board renewal and the maximum tenure of board members. That could open up boardroom seats and make space for increased levels of boardroom diversity, especially for non-traditional candidates from outside the C-suite,” the report said. 

Scrutiny of board director and executive remuneration is expected to rise, while the remuneration of governance, risk and compliance professionals (such as chief risk officers) is predicted to grow.

“As financial services organisations seek to conform to evolving regulatory frameworks and reassure shareholders and the public, the demand for qualified talent is on the rise, creating a competitive marketplace which will drive remuneration growth amongst all governance, risk management and compliance roles,” the Governance Institute report stated. 

“The growing complexity around governance, risk management and compliance has also led to these teams growing significantly in size over a short period of time, particularly in financial institutions.”

Demand for risk and compliance professionals on the rise 

Another recent study showed a “massive spike” in vacancies for risk and compliance professionals – such as those with experience across operational and conduct risk, anti-money laundering and financial crime, change management and regulatory compliance – following the royal commission. 

“Given the spotlight that’s being shone on the industry following the banking royal commission, the ability to effectively assess and monitor risk and compliance has leapt to the forefront of most organisations’ agendas,” the Hays Jobs Report stated. 

“This has led to a rising demand for risk and compliance professionals. As a result, we expect salaries for niche risk and compliance professionals to increase over the year ahead.”

Large consulting firms, according to Hays, are also investing in their risk and compliance advisory teams that advise clients such as banks on risk culture, reputational risk, compliance and governance frameworks, regulatory change, financial crime and anti-money laundering/counterterrorism financing.

“The banks are the most active recruiters across risk at present, both domestic and international,” the report stated, further noting that salaries across risk has also “increased noticeably” over the past year. 

Demand for credit assessors are also on the rise as lenders become more scrupulous with their verification of customer income and expenses when assessing home loan applications.  

“We have seen an increase in demand for candidates holding a credit analysis background along with dispute resolution experience to work in EDR (external dispute resolution) teams that liaise with regulators,” the Hays report stated. 

[Related: ABA chief calls for ‘tolerance of failure’]