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Portfolio

Fintech Ventures Profit from Outsourced Compliance Expertise

by InnReg on November 18, 2017

Outsourced compliance expertise and regulatory consultants can play a crucial role at every stage of a fintech’s business lifecycle. Whether a fintech company is still beta-testing regulated products and services, launching, or finding new products and markets for growth, compliance expertise helps avoid costly mistakes. In addition, it can prevent both regulatory fines and lost customer trust. 

Over time, the need for compliance resources can also evolve, from engaging an outsourced Chief Compliance Officer to bringing onboard an entire outsourced team to including internal hires who handle compliance responsibilities.


Fintech Business Environment Specialization

In our experience, fintech innovators are at their best and brightest when they’re developing groundbreaking disruptive new product ideas. Regulatory and compliance details tend to be less exciting for them and often require a specialized skill set.

This phenomenon explains why many innovative startups build a core team of creative thinkers and then tap into outsourced expertise for specialized skills such as legal, digital advertising, and regulatory compliance.

Outsourced compliance delivers a higher level of expertise at a lower cost when compared to maintaining these departments in-house.


Outsourcing Has Become a Business Basic

Outsourcing has become an essential component of today’s business model for many SMEs (small to midsize enterprises). It’s a great way to access knowledge and experience so that a core executive team can stay focused on more creative processes and long-term growth initiatives that will directly impact their bottom line.

An outsourced compliance deliverable can range from an ad hoc consultation, like a system audit with strategic and tactical recommendations, all the way up to a fully managed compliance department complete with CCO (chief compliance officer).

Larger fintech organizations sometimes opt for a hybrid approach where they maintain an internal compliance department with the general expertise and then leverage an outsourced regulatory consulting group as a complement to their in-house compliance skills.

Another option that’s emerged over the past few years is referred to as on-demand fractional c-suite support. This solution allows a CEO to leverage an outsourced CCO on an ongoing basis without the expense of a full-time compliance department head.

The financial services executive who takes a DIY approach to regulatory compliance could be taking quite a risk for two reasons. First, the rules and regulatory enforcement approaches are constantly changing. Compliance specialists invest a substantial percentage of their time reviewing newly published rules and guidelines in order to determine the impact on their business.

Second, government agencies are fighting a losing battle against cybercrime and money laundering. They’re pushing responsibility for prevention as well as accountability for breaches onto the private sector. So, it pays to have best-in-class compliance expertise on your side.


Outsourcing the CCO Role Reduces Costs

As the CEO of a regulatory compliance consultancy, I’m acutely aware of each client’s need to quantify and justify their investment in outsourced services. The Annual Salary Guide – Accounting And Finance Professionals published each year by Robert Half International is an excellent source of raw data for this type of ROI analysis.

The 2018 Guide estimates the average salary for a CCO in a financial service firm in San Francisco at $335,790*, and the same CCO salary in Miami at $255,440**. That is just one single salary without overhead, bonuses or other executive incentives.

These figures provide a good starting point to estimate the fully-loaded cost of maintaining an in-house regulatory compliance department. The typical fintech enterprise will find they can outsource their entire compliance function for less than the cost of just a department head.


Outsourcing Delivers Intangible Benefits

An outsourced solution delivers two intangible benefits in addition to cost savings. First, most career CCOs are strong generalists who are good at identifying obstacles. An outsourced CCO provides specialized fintech compliance expertise.

In addition, CCOs thrive when digging into a new problem and formulating a sound solution that overcomes obstacles without undue risk. In this case, an ounce of prevention is worth a pound of cure.

A good regulatory consultant does the right things, right, the first time. They keep their eye on your long-term strategic direction. Talk to a fintech startup that ran into regulatory issues 18 months after launch, and they’ll tell you the value of choosing the optimal business model, product design, and compliance stack—as well as the high cost in both time and money to correct their mistakes.

* According to the Robert Half International 2018 Salary Guide for Accounting and Finance, the fully loaded salary for a CCO at a financial services company based in San Francisco will be $335,790:

  • National median base salary (50th percentile on page 20): $195,000
  • Local variance for San Francisco is +40% (page 23): $273,000
  • Fully loaded cost to the employer is 123% of salary: $335,790
  • Bonuses, incentives, and other forms of compensation are not included in this calculation.

** According to the Robert Half International 2018 Salary Guide for Accounting and Finance, the fully loaded salary for a CCO at a financial services company based in Miami/Fort Lauderdale will be $255,440:

  • National median base salary (50th percentile on page 20): $195,000
  • Local variance for Miami/Fort Lauderdale is +6.5% (page 23): $207,675
  • Fully loaded cost to the employer is 123% of salary: $255,440
  • Bonuses, incentives, and other forms of compensation are not included in this calculation.

Outsourced Compliance Increases Expertise

The rationale for outsourcing is simple – more expertise, less cost, and more hours in your day.

An outsourced compliance solution is not for everyone, but the right relationship delivers both tangible and intangible benefits. There are very few small to midsize financial services companies, especially fintech startups, who have the in-house expertise to plan and deploy an effective regulatory compliance program that stands strong during a regulatory agency examination or enforcement action.

An outsourced compliance partner will take ownership and contribute to their client’s success in three different ways:

  • Deeper regulatory expertise than the typical in-house resource
  • More real-world implementation experience
  • More up-to-date knowledge as new rules, guidelines, and best practices emerge in the regulatory landscape.

Another substantial benefit is the time element. When an executive reduces the number of hours spent on regulatory compliance issues, they increase the number of hours invested in launching, growing, and improving profitability for their business.


Choosing the Right Outsourced Solution

It’s important to team up with a service provider who is solution-oriented and relationship-oriented. Someone who acts as a true partner, delivering bespoke compliance solutions designed to meet your unique business needs. They’ll start by auditing the entire business ecosystem to identify compliance gaps. Then they’ll develop actionable advice with a detailed implementation plan. If you choose to outsource your complete compliance function, then they’ll take ownership and full accountability.

When you meet with a potential outsourced compliance firm, it’s important to ask a series of questions to gauge the fit:

  • Do they have specific industry expertise that matches your business needs or complements your in-house compliance skill set?
  • Do they have case studies to show prior success?
  • What was their strategic process for getting these results? With a solid strategy, they can duplicate results over and over again.
  • Who are their clients? Can they provide client references in addition to online testimonials?
  • How many accounts do they currently manage? Do they have the bandwidth to manage your business?
  • How are they compensated?
  • Was there a good interpersonal communications rapport during your meetings? How are their listening skills? Did they answer each question to your satisfaction? Do they exhibit a problem-solution mindset?
  • Review the service agreement carefully, including addendums with task-level deliverables. This scrutiny is the only way to make sure everyone is clear which tasks are included in the pricing and which tasks are optional add-ons at an additional cost.

Regulatory Consultant: Four Issues to Avoid and Ensure Success

According to Gartner, Inc., “…one in four outsourced contracts will be renegotiated or canceled within 3 years.”

It’s not a good track record, but there’s good news. The problems are predictable and consistently arise from the same four issues:

  • Lack of upfront buy-in
  • Lack of clear strategic objectives
  • Lack of a detailed tactical implementation plan
  • Lack of open communication.

Armed with this knowledge, the recipe for a productive and profitable outsourced relationship becomes obvious. It consists of five key countermeasures:

  1. Include the entire team at the start of the process, and be sure to gain executive and departmental buy-in.
  2. Work with your outsourced consulting partner to establish clear, strategic objectives (both short-term and long-term).
  3. Work with your regulatory consultant to establish clear, strategic objectives (both short-term and long-term).
  4. Develop a comprehensive list of tactical deliverables with a timeline and budget. The schedule should include regular status meetings to ensure program deployment is on time and on budget with no surprises.
  5. Maintain open communications using formal and informal channels.

Regulatory Compliance Is a Complex, Moving Target

Successful fintech entrepreneurs work hard. And they work smart. One of the best ways to increase productivity and profitability is to focus on innovation and growth, while tapping someone else’s expertise for infrastructure or support functions like legal, digital advertising, and regulatory compliance.

Reach out to the team at InnReg for a Complimentary Consultation. We’ll review your business needs and work with you to deliver significant value and savings compared to any available alternative with the same level of experience, specialization, and results.

Topics: Compliance and Strategy


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