A PYMNTS Intelligence report, “Regulatory Uncertainty Shifts Middle-Market CFOs’ Focus Toward Compliance and Risk Management,” explores how these pressures affect firms of various sizes and their preparedness for future regulatory changes.
Regulatory Uncertainty
Regulatory pressure is a concern, with 27% of middle-market CFOs noting heightened uncertainty in August, an improvement from 30% in May. Smaller companies, however, experience this pressure more acutely: 32% of CFOs from smaller firms reported high regulatory uncertainty, nearly double the 17% seen in larger firms. This discrepancy highlights the struggles smaller businesses face in adapting to complex and changing regulations.
Only 43% of middle-market CFOs reported low regulatory uncertainty, while 95% recognized the need to improve readiness for changes. The number of uncertainty sources has increased from 1.9 to 2.5, underscoring the complexity of challenges. These findings show that many middle-market firms, particularly smaller ones, are not fully equipped to manage the evolving regulatory landscape.
Operational Disruptions
Regulatory uncertainty is causing operational disruptions for middle-market firms, with 20% of CFOs citing it as their top issue. These disruptions impact business continuity, affecting everything from supply chains to daily workflows, as resources are redirected to compliance.
Legal risks also pose a major concern, with 17% of CFOs identifying them as a key challenge, particularly in industries like technology, where 30% of firms note legal exposure as their primary regulatory issue.
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Additionally, regulatory changes are driving up costs for many firms, with one-third of CFOs highlighting this as a major concern. Delayed investment decisions and long-term planning are also common, with 32% and 30% of CFOs respectively reporting these issues. As a result, many firms are focusing on short-term solutions rather than long-term innovation.
Despite these challenges, nearly half of CFOs are optimistic about improved regulatory certainty in the future, although more than 90% acknowledge the need for more efficient strategies to address regulatory shifts.
Larger Firms Handle Compliance
Larger middle-market firms are better equipped to handle regulatory compliance due to more resources. On average, these firms dedicate about three business days per month to regulatory tasks, with 60% of CFOs reporting that their teams spend between 20-40 hours monthly on compliance. But only 45% of firms have dedicated personnel for this task, compared to 74% of larger firms with revenues over $400 million. Smaller firms, particularly those with less than $400 million in revenue, struggle to allocate sufficient resources to manage evolving regulatory requirements.
Non-financial reporting is the top concern for 38% of CFOs, especially in high-regulatory uncertainty environments. Other key issues include antitrust and consumer protection laws, cited by 28% and 26% of CFOs, respectively.
Companies with dedicated compliance teams are better positioned to manage these challenges, while smaller firms lacking such resources face a distinct disadvantage. To stay competitive, smaller firms must prioritize compliance readiness and adopt strategies that leverage external partners to manage evolving regulations.
