Total estimated compliance costs for private banks in the UK equated to 47% of the sector’s profits in 2010, according to new data from benchmarking and research provider ComPeer.
The data was generated after ComPeer surveyed 50 of the top firms in the UK wealth management industry and polled 300 high net worth individuals.
It highlights the burden facing private banks in the UK. For example, meeting various regulatory requirements from the UK, the European Union (EU) and the US cost the UK wealth management industry 9% of its income in 2011, according to projected figures from ComPeer.
The provider estimates that the hidden cost of compliance, which involves time spent on compliance matters by senior management, front office professionals and other non-compliance staff, is at least equal to the direct recorded cost of compliance.
“There’s a cost-benefit analysis that needs to be done and is not being done,” ComPeer non-executive director Bruce Weatherill told Private Banker International.
The total estimated compliance costs for the UK wealth management industry was £416m ($663m) in 2011.
In 2010 alone, expenditure on the FSA’s Retail Distribution Review increased by 50%.
Angela Knight, CEO of the British Banking Association, has warned that if wealth managers think compliance costs are high now they are in for a rude awakening in the future.
For example, compliance costs are set to rise for the US’ FATCA legislation and the EU’s MiFID directive.
Of 300 HNW clients polled for ComPeer’s survey on compliance, 69% expect additional compliance costs will be passed on to them.
They were evenly split on whether compliance changes have made them more secure, with 41% feeling more secure and 43% less secure.
Andrew Tyrie, MP, and chairman of the UK’s Treasury Select Committee, said as the ComPeer survey develops, the UK’s Financial Services Authority, trade bodies and the government would have to take the results into account.
The FSA declined to comment on ComPeer’s data.