The cost of compliance for the securities industry almost doubled to an estimated $25.5 billion over the last three years, as companies hired staff to meet the daily inquiries of regulators, according to a survey of 56 firms by the Securities Industry Association.
The SIA’s survey is the first quantitative measure of how much the slew of regulation passed over the past few years is costing the industry. In 2005, the industry spent $25.5 billion on compliance, a major increase from the $13 billion it spent in 2002.
The survey’s authors argue that regulators should work more closely with the industry to develop cost-effective ways to protect investors.
Of the estimated $25.5 billion spent, about 90% went to increasing the size and compensation packages of compliance staffs.
Chief executives now report spending 20% to 25% of their time on compliance-related matters – more than quadrupling the time they spent five years ago, according to the SIA.
The survey also found that on average, firms reported receiving 231 inquiries from regulators in the year prior to the survey, with calls ranging from quick requests for disclosures to extensive investigations. For large firms, that average grew to 772 inquiries a year.
The SIA conducted the survey in the fall of 2005 in response to growing frustration within the industry about the size, scope and redundancy of regulatory demands.
According to the survey, the dollar amount the industry spent on compliance each year met or exceeded industry profits before taxes. Firms spent 10% of their gross revenue and 13% of net revenue on compliance-related activities in 2004.