The attractions of investing in compliance services

22/03/2016
Read Time: 3 Min

Across many sectors, the regulatory landscape has become increasingly complex and demanding in recent years. The financial crisis and reaction by governments has led to a plethora of new regulation for the finance industry from the wide ranging reforms of the Dodd-Frank Act to BASEL III and AIFMD, and there is more still to come: MAD II, MiFID II, UCITS V, the list goes on and on. Meanwhile, in the pharma sector, we have seen the FDA Amendments Act in the US in 2007, the introduction of stricter product safety monitoring under the EU Reform Bill in 2011, new pharmacovigilance rules under new EU pharma regulatory laws and the revised Human Medicines regulations in the UK. More broadly, legislation such as the Corporate Manslaughter & Corporate Homicide Act in 2007, the Bribery Act in 2010 and the Agency Workers’ Directive in 2011 have ensured that compliance is now never far from front of mind for businesses of all sizes and across all sectors. On top of this, there are also increasing non-regulatory pressures placed on companies by consumers who are demanding more ethical behaviour from corporates and more knowledge of their supply chain (driven by events such as the horse meat scandal in the UK and human disasters in factories in Bangladesh).

In this new era of greater corporate transparency and accountability, keeping up to date with regulatory and customer driven changes, understanding what is required in order to comply with that regulation and implementing cost effective compliance systems and processes have become very real challenges for businesses.

As a result, compliance professionals are in high demand for in house roles. Indeed, in ECI’s 2014 Growth Survey, 11% of respondents in the healthcare sector cited compliance as an area where they are currently experiencing a skills shortage, pointing to a focus on strengthening internal compliance capabilities to meet the increasing demands of regulation. However, for many SMEs, hiring a full time compliance professional in house is simply too costly to be viable. An outsourced services provider, on the other hand, can potentially offer a much more cost effective solution.

In December 2012, recognising the growing cost and time burden of complying with health & safety regulation and employment law for small businesses, ECI invested in Citation, a provider of outsourced health & safety and employment law services to SMEs.

Citation delivers its services via a combination of its online platform and 64 legally trained operators. As well as enabling the business to provide much more cost effective solutions to its customers, the online platform also adds to Citation’s scalability.

Scale is important within the compliance services space. Larger services providers have greater depth and breadth of experience in dealing with the multitude of compliance related issues that might arise for their customers. In recent times, there have been a good number of high profile litigation cases and examples of regulators imposing hefty fines on businesses who have failed to comply with regulation, which has led to an acute awareness amongst business owners of the potential costs of non-compliance. Indeed, penalties imposed by the FCA, for example, have risen by 15x since 2008/09. Enforcement is therefore driving good growth for specialist third party compliance services providers.

Moreover, as businesses become increasingly international, they must also contend with the demands of multiple regulators and regulatory frameworks. Perhaps no businesses are more conscious of this than those within the oil & gas sector. In response to a general increase in awareness of health and safety risk, and in the wake of catastrophic disasters such as Deepwater Horizon, regulation has been tightened in the sector over the last few years. The challenge for oil & gas businesses is that they often operate across multiple jurisdictions and both the regulation itself and how it is interpreted in practice can vary significantly from one jurisdiction to the next.

Adding to this complexity is the fact that regulation itself increasingly has a global reach. A good example of this is FATCA, a piece of US legislation pertaining to the reporting of foreign financial assets, which is directly impacting foreign institutions. Similarly AIFMD has implications for any financial institutions globally who wish to market within the EU. Compliance services providers with international expertise are therefore set for strong growth.

This picture of complex regulation, burdensome reporting requirements, high levels of scrutiny from the regulators and employees holding employers to account looks set to stay, which is why we at ECI continue to be interested in investing in businesses that provide systems and services that can help companies to manage compliance efficiently and cost effectively.

If you are an owner, manager or advisor to a business that provides compliance solutions, we would be delighted to hear from you.

Please click here to read more on our Business Services sector.
Please contact Richard Chapman or Suzanne Pike for further information.

About the author

Richard Chapman

"I enjoy leading deals at ECI and have invested in lots of different areas including healthcare, restaurants, business services and tech-enabled services, to name a few. A large part of my role is post-investment, helping companies continue their growth organically and through acquisition, both in the UK and internationally."

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