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Rising costs of supervision endanger continuity of accountancy firms

Since the beginning of the year, AFM, the regulatory authority, is fully responsible for the supervision of accountancy firms. As a result, supervisory costs for the industry will triple. This increase threatens the continuity of small and medium-sized firms in particular, says Hyarchis, a supplier of software solutions in the field of regulatory compliance.

At the beginning of this year, the sector organizations SRA and NBA have transferred supervision of the accountancy sector to the AFM. The AFM has announced stricter supervision. This mainly affects medium-sized and smaller firms who, in recent years, have largely remained unaffected by the regulator. In addition to increasing supervisory costs, they will also need to grow their workforce in order to adapt their business operations to the growing regulatory pressure. This jeopardizes their continuity.

Direct costs to triple

The costs of supervising the accountancy sector will increase from €1.5 million in 2021 to €5.1 million in 2024, according to the AFM. These costs are paid by the accountancy firms themselves. This means that all audit firms will be confronted with significantly higher costs.

In addition to these direct supervision costs, accountancy firms are faced with rising personnel costs to enable timely compliance with the increasing burden of legislation. Last year, NVB, the Dutch Banking Association, reported that one in five employees in the banking sector now works full-time on compliance. If that becomes the norm in the accountancy sector, small and medium-sized accountancy firms will have to significantly increase their workforce, without generating additional turnover. That is not feasible and poses a threat to the continuity of these firms.

“Accountants don’t have the budgets to set up compliance departments on that scale. Often, compliance with laws and regulations is a task that one of the partners does on the side, in addition to their day-to-day work and commercial responsibilities,” says Ruud van der Kruk, co-owner of Hyarchis.

Regtech

In recent years, several accountancy firms have been fined for not complying with the WTA, the relevant legislation. If the AFM means business, even more fines will follow. A frightening picture for a sector where compliance is not yet as important as in, for example, banks. Van der Kruk says that accountancy firms should make use of the lessons learned by the banking sector. The most important of these is the use of Regtech, or regulatory technology.

Regtech is a fairly new term, says Adriaan Hoogduijn, CEO of Hyarchis: “It is a collective term for a group of technologies that help financial service providers comply with legislation and regulations. You can apply Regtech for identity control, fraud prevention, transaction monitoring, and reporting, among others. Regtech offers standardized and scalable applications that automate regulatory compliance at a fraction of the cost of traditional solutions.”

Van der Kruk: “We want to help accountants automate these processes as much as possible, preventing human errors. Hyarchis has proven itself with good compliance solutions for large financial institutions. We now also want to bring these techniques and solutions to the accountancy sector.”

Customer onboarding as a competitive advantage

A second ‘problem’ regarding compliance is that accountants still see compliance mainly as an administrative burden and not as a commercial opportunity. But it can be, with the proper application of Regtech. Hoogduijn explains how neo banks and brokers such as e-Toro, Revolut and Bunq turned a burden into an opportunity: “Unlike traditional banks, those fintech challengers have invested in Regtech from the very beginning. With their ambition to quickly gain market share, they turn simple customer onboarding into a key competitive advantage. For a generation that organizes their lives largely from their mobile phone, this is a crucial condition for their loyalty. At digital-only banks, they can just as easily open a bank account as order a taxi or have a meal delivered.”

Paradigm

Van der Kruk and Hoogduijn argue for a “paradigm shift” at accountancy firms. According to them, the current idea that compliance is a brake on innovation or stands in the way of good customer experience is outdated. “There is a whole generation of fintechs who are proving otherwise. By making compliance top-of-mind, they create a very good customer experience, which enables them to gain market share very quickly,” Hoogduijn says. “If accountants can automate and integrate the KYC and customer onboarding processes into their day-to-day practice in the same way, they can make a big difference commercially.”

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