Middle-market CFOs face rising regulatory uncertainty as smaller firms bear the brunt of increased compliance costs, legal risks, and operational disruptions. To cope, many rely on external partners and new strategies, but this approach can delay long-term investments and leave firms more vulnerable.
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 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.
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.
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 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.
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