As regulatory complexity increases across financial services, payment services and investment management, building an effective compliance function requires deliberate strategic choices. Regulated firms face ongoing pressure to maintain effective oversight while managing operational costs and access to specialist expertise.
Senior leadership teams must therefore consider whether to recruit permanent in-house compliance professionals, use outsourced compliance support or adopt a hybrid model that combines internal accountability with external expertise.
The right approach will depend on the firm’s size, business model, regulatory permissions, risk profile, growth plans and the complexity of its compliance obligations.
The Evolving Compliance Talent Market
Securing experienced compliance professionals in the UK market can be challenging for both growing and established firms. Common considerations include:
- Talent scarcity: Experienced compliance officers, Money Laundering Reporting Officers (MLROs), compliance monitoring specialists and regulatory subject matter experts can be difficult to recruit, particularly where firms require niche or senior-level expertise.
- Rising employment costs: Salaries, employer National Insurance contributions, pensions, recruitment costs and continuing professional development (CPD) can represent significant ongoing expenditure.
- Retention and key person risk: A small compliance team can create concentration risk. The departure or prolonged absence of a key individual may reduce the firm’s capacity to maintain monitoring, advisory and regulatory activities.
- Changing regulatory requirements: Firms may periodically require expertise in areas such as prudential regulation, financial crime, Consumer Duty, operational resilience or regulatory change that does not justify a permanent specialist position.
These factors have made flexible compliance resourcing increasingly relevant to firms seeking to balance capability, resilience and cost.
Evaluating Permanent In-House Compliance Staff
Building an internal compliance function provides dedicated resource and allows compliance professionals to develop a detailed understanding of the firm’s business, systems and risk profile.
Key benefits of permanent staff
- Deep institutional knowledge: In-house teams can develop a detailed understanding of internal systems, products, processes, customers and organisational culture.
- Day-to-day integration: Permanent compliance personnel can work closely with senior management, operational teams and the business, providing readily available regulatory input.
- Direct management oversight: The firm retains direct control over recruitment, performance management, priorities and the allocation of compliance resources.
- Continuity: A permanent team can provide consistency in the firm’s compliance processes, monitoring programme and regulatory engagement.
Key limitations of permanent staff
- Higher fixed costs: Salaries, benefits, recruitment and development costs continue regardless of fluctuations in the firm’s workload.
- Capacity constraints: A small internal team may struggle to respond quickly to major regulatory implementation projects, authorisation applications, remediation programmes or periods of increased supervisory activity.
- Specialist knowledge gaps: A permanent team may not have deep expertise across every regulatory area relevant to the firm.
- Key person dependency: Where important compliance activities rely heavily on one or two individuals, staff turnover or absence can create operational and governance risks.
Evaluating Outsourced Compliance Support
Outsourced compliance support can provide additional capacity or specialist expertise without requiring every capability to be maintained through permanent headcount. Depending on the firm’s needs, this may include advisory retainers, managed compliance services, project-based consultancy or interim support.
Outsourcing should, however, be treated as a governance and risk-management decision rather than simply a cost-saving exercise. The FCA expects firms to manage the risks associated with outsourcing and third-party arrangements, with the firm remaining responsible and accountable for its regulatory obligations.
Key benefits of outsourced support
- Scalability: Firms can increase or reduce external support according to regulatory priorities, project requirements and changes in workload.
- Access to specialist expertise: External providers can offer experience across areas such as prudential regulation, financial crime, Consumer Duty, operational resilience, regulatory change and compliance monitoring.
- Broader regulatory perspective: External specialists working across different firms and regulatory issues can provide useful benchmarking and insight into emerging supervisory expectations.
- Independent challenge: External support can provide an additional layer of objective challenge through compliance health checks, monitoring reviews, mock regulatory exercises and Board reporting.
- Continuity and resilience: Using a broader external resource base can reduce reliance on a single internal compliance professional, particularly during recruitment gaps or periods of absence.
Key limitations of outsourced support
- Integration requirements: External providers require effective onboarding, access to relevant information and clear communication arrangements to understand the firm’s business and operating model.
- Third-party risk: Firms must conduct appropriate due diligence and maintain effective oversight of outsourced arrangements. The FCA expects firms to manage outsourcing and third-party risks throughout the life of the arrangement.
- Dependence on provider quality: The effectiveness of an outsourced arrangement depends on the provider’s expertise, capacity, independence, communication and understanding of the firm’s regulatory requirements.
- Regulatory accountability remains with the firm: Outsourcing the performance of a compliance activity does not transfer the firm’s regulatory responsibilities to the service provider. Under SYSC 8, where applicable, outsourcing must not result in senior personnel delegating their responsibility for the firm’s regulatory obligations.
Permanent Staff vs Outsourced Compliance Support
The appropriate model will vary between firms, but the following comparison can help inform the decision.
| Operational Dimension | Permanent In-House Staff | Outsourced Compliance Support |
| Cost structure | Higher fixed costs, including salary, benefits, recruitment and professional development. | More flexible costs that can be structured around an agreed scope, retainer or project requirement. |
| Business knowledge | Strong understanding of the firm’s systems, products, processes and culture over time. | Requires effective onboarding but can bring experience from a wider range of firms and regulatory environments. |
| Specialist expertise | Dependent on the skills and experience available within the internal team. | Can provide access to multiple specialists across different regulatory disciplines. |
| Scalability | Additional capacity generally requires recruitment or internal restructuring. | Capacity can often be increased more quickly for projects, regulatory change or temporary workload increases. |
| Independence | Internal familiarity can be valuable but may, in some circumstances, reduce the level of independent challenge. | Can provide an additional independent perspective, subject to appropriate conflicts management. |
| Key person risk | Potentially higher where critical activities depend on a small number of individuals. | Can provide access to a wider resource base, although the firm remains responsible for managing provider dependency. |
| Regulatory responsibility | Remains with the firm and its relevant senior management and governance arrangements. | Remains with the firm; outsourcing does not transfer regulatory accountability to the service provider. |
| Best suited to | Firms requiring substantial day-to-day internal compliance capacity and deep organisational knowledge. | Firms requiring specialist expertise, flexible capacity, additional independent challenge or support during periods of increased demand. |
The Hybrid Approach: Combining Permanent Leadership with External Support
Compliance resourcing does not have to be a binary choice between permanent employees and external consultants.
A hybrid model can combine internal leadership and accountability with flexible external expertise. This can be particularly effective for firms that require consistent internal oversight but do not need every compliance capability to be maintained permanently in-house.
Under a hybrid model:
- Internal compliance leadership: A permanent Head of Compliance, Compliance Officer, MLRO or other appropriately appointed individual may retain responsibility for relevant compliance activities, depending on the firm’s regulatory structure and applicable requirements.
- External specialist support: An external provider can supplement the internal team with activities such as compliance monitoring, financial crime file reviews, regulatory horizon scanning, prudential support, policy reviews, training and remediation projects.
- Flexible project capacity: External specialists can provide additional resource during authorisation applications, regulatory implementation projects, remediation programmes, supervisory engagements or periods of increased workload.
- Independent assurance and challenge: External reviews can provide an objective assessment of the effectiveness of the firm’s compliance framework.
For firms within the Senior Managers and Certification Regime, the precise allocation of responsibility will depend on the firm’s circumstances and applicable rules. Where an outsourced arrangement involves a function for which responsibility must be allocated to an SMF manager, the firm’s governance and Statements of Responsibilities should reflect the arrangement appropriately. FCA guidance also makes clear that outsourcing does not remove the firm’s responsibility for the outsourced activity.
This approach can provide a balance between internal business knowledge and external specialist capability without requiring the firm to maintain a large permanent compliance function.
How to Choose the Right Compliance Resourcing Model
Before deciding between permanent, outsourced or hybrid support, firms should consider:
- Regulatory scope
What regulatory permissions, regimes and obligations apply to the firm? The complexity of the regulatory perimeter should influence the capabilities required within the compliance function.
- Business complexity and risk
A firm with multiple products, jurisdictions, customer types or regulatory obligations may require broader specialist expertise than a smaller, more straightforward business.
- Existing internal capability
Consider the skills already available internally and identify where there are genuine gaps in experience, capacity or specialist knowledge.
- Key person and succession risk
Assess whether important compliance activities depend excessively on one or two individuals and whether adequate contingency arrangements are in place.
- Workload volatility
If compliance requirements fluctuate significantly because of regulatory projects, authorisation applications, remediation programmes or business growth, external support may provide useful additional capacity.
- Independence and challenge
Consider whether the firm’s governance arrangements would benefit from an independent assessment of compliance effectiveness, particularly for monitoring, health checks, remediation validation or Board reporting.
- Outsourcing governance
Where activities are outsourced, the firm should understand the applicable outsourcing and third-party risk requirements, undertake appropriate due diligence and maintain effective oversight of the provider. The FCA expects firms to remain accountable for managing the risks associated with their third-party arrangements.
Conclusion
There is no universal compliance resourcing model that is right for every firm.
Permanent in-house teams can provide continuity, institutional knowledge and close integration with the business. Outsourced support can provide specialist expertise, flexibility and additional capacity. For many firms, a hybrid approach can combine the strengths of both.
The key is to ensure that the firm’s compliance function is appropriately resourced for its regulatory obligations, risk profile and operational complexity, while maintaining clear accountability and effective governance.
By assessing capability, capacity, key person risk and the firm’s future requirements, senior management can develop a compliance resourcing model that supports both regulatory effectiveness and commercial objectives.
How Complyport Can Help
Complyport helps financial institutions, payment service providers and other regulated firms design and implement flexible compliance resourcing models tailored to their regulatory obligations and operational requirements.
Our resourcing and advisory services include:
- Outsourced compliance monitoring and file-testing managed services;
- Technical advisory retainers and ongoing compliance support;
- Interim MLRO, Head of Compliance and other compliance leadership support, where appropriate;
- Independent compliance health checks, mock regulatory exercises and gap analyses;
- Consumer Duty outcome testing, ICARA support and prudential reviews, where applicable; and
- Ad hoc project support for FCA authorisation applications, Section 166 engagements and regulatory remediation programmes.
Whether you need additional compliance capacity, specialist technical expertise or independent challenge, Complyport can help you build a proportionate and resilient compliance function.
Discover how Complyport can support your compliance needs. Visit https://complyport.tech/ to learn more about our RegTech solutions.
