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Finance teams face new pressures amid compliance creep

Finance functions face a myriad of growing compliance pressures amid rising reporting requirements, including a monumental shift in mandatory ESG disclosures

Finance teams face new pressures amid compliance creep

The compliance burden placed on companies finance teams continues to rise, with ever-increasing tax and non-financial reporting requirements being placed on businesses.

“It’s a natural creep,” explains Vineta Bajaj, group finance director at Ocado Group. “It sounds like it’s not good but it’s being brought in to provide more live information to allow stakeholders, shareholders, and analysts to fully validate a business in the public and private eye.”

In contrast, Scott Dussault, CFO at Workhuman, says his company is not experiencing the same level of pressure but that it’s taking proactive steps to meet some of the new reporting criteria.

“We’re a private company so we don’t have investor pressure but at the same time, we’re investing in [our compliance].

“We do a lot of things internally that frankly, we don’t necessarily have to do today but we’re getting ahead of that. The reason why we’re doing that is that we want to be compliant and that we’re preaching to our customers and to our stakeholders what we’re living ourselves.”

Unsurprisingly, growing compliance demands are seeing costs increase for companies. According to Accenture’s Compliance Risk study, 90% of respondents expect their compliance-related costs to go up by 30% in the next two years, yet their tech budget has remained flat.

However, the compliance budget at Ocado Group is seeing a “steady increase” to reflect the new compliance costs, says Bajaj.

At Workhuman the company is increasing its investment in technology to reduce compliance costs, notes Dussault.

One compliance storm soon coming down the road for companies to contend with is the Securities Exchange Commission’s (SEC) proposed climate disclosures requiring companies to report on their climate risk. The regulator estimated that compliance could cost around $640,000 during the first year for large companies with ongoing annual costs predicted to drop to $530,000.

Similarly, the EU’s Corporate Sustainability Reporting Directive (CSRD) – with the earliest application coming into force in January 2024 – will see new reporting requirements apply to 49,000 EU companies, an increase from the 11,600 companies already reporting on sustainability information, according to the European Commission’s impact assessment. This means an increase in administrative costs to meet new compliance requirements.

Navigating the compliance creep

Regulators and governments have posed the greatest challenges for companies when it comes to compliance since 2019 and are expected to continue through to 2023, according to Accenture’s Compliance Risk study.

Compliance is naturally a heightened risk in an internationally expanding fast-paced tech business like Ocado Group, says Bajaj. Therefore, it is key companies are aware of the latest regulatory developments.

“For me, personally, we’ve grown into nine countries in the last five years and we were a predominantly UK business for the 15 years before that,” she says.

“My compliance pressures are about not knowing the compliance requirements in different countries. My finance team is very UK-centric [so] I might have a couple of blind spots [around compliance] where I have to get more advisors in.”

Accenture’s report listed ESG as one of the largest compliance risks currently facing companies. The ESG space is ever-evolving, requiring compliance functions to have continuously “relevant, adaptable and tech-driven regulatory change and related risk management programs” to provide the level of detail asked for in the disclosures, according to the report.

As such, CFOs now face new “culture challenges and culture initiatives” that are falling under the scope of scrutiny from regulators, governments and employees, says Dussault.

Alongside those already in place, further ESG-reporting requirements are expected to come into force across multiple jurisdictions with the adoption of the International Sustainability Standards Board (ISSB)’s new standards. This will pose new challenges for finance teams to measure and report accurately on granular levels of detail in their companies’ annual reports.

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