Middle-market CFOs already working through an uncertain business environment feel caught in a bind, with regulatory pressure rising. As a result, compliance burdens and legal risks are pushing CFOs to focus on short-term fixes instead of long-term financial strategies. This reactive approach can delay key investments and strategic planning, ultimately leaving firms more vulnerable to ongoing uncertainty.
A quarter of middle-market CFOs say regulatory pressure worsens uncertainty, with just 43% describing their regulatory environment as low uncertainty. Smaller firms feel the impact most, with nearly one-third reporting high regulatory uncertainty. Just 5% of CFO respondents believe their firms are fully prepared for future regulatory changes. This data highlights the widespread need for improvements in readiness for big swings in compliance requirements across the middle market.
These are just some of the findings of the latest PYMNTS Intelligence 2024 Certainty Report. This project leverages insights from a survey of 60 CFOs from middle-market firms. This edition’s survey was conducted between July 31 and Aug. 7, 2024.
Regulatory Pressures Heighten Uncertainty for Smaller Firms
Nearly a quarter of middle-market CFOs report that regulatory pressures are intensifying uncertainty for their businesses. Smaller firms feel the greatest impact. In August, 27% of these CFOs described their operating environment as highly uncertain, a slight improvement from May’s 30%. While fewer CFOs report high uncertainty overall, they point to localized areas of concern. These include business performance and macroeconomic conditions, steady risers as sources of uncertainty since early 2024.
Smaller firms are disproportionately affected by regulatory challenges, with 32% reporting high regulatory uncertainty, nearly double the corresponding 17% for larger firms. Just 43% of middle-market CFOs consider the regulatory environment to be of low uncertainty. Nearly all respondents (95%) acknowledge the need for improvements in their middle-market firms’ readiness to cope with potential regulatory swings.
Data reveals that middle-market uncertainty is coming from more places. These CFOs now identify an average of 2.5 uncertainty sources impacting their operations, up from 1.9 earlier this year. This trend spans firms of all sizes within the middle market.
Operational Disruptions Headline Regulatory Uncertainty’s Impacts on Middle-Market Firms
Regulatory frictions disrupt day-to-day operations for middle-market firms. In fact, 20% of middle-market CFOs name operational disruption as the most significant impact of regulatory uncertainty. These disruptions can affect everything from supply chain efficiency to workflow continuity by forcing businesses to dedicate more resources to managing compliance.
Heightened legal risks follow close behind, with 17% of CFO respondents pointing to legal exposure as the most significant impact. This is especially true for tech firms, with 30% citing legal issues as their top regulatory challenge.
One-third of firms note regulatory changes leading to increased costs. Long-term planning difficulties (32%) and delayed investment decisions (30%) add to many CFOs’ challenges. These issues push firms toward short-term fixes, detracting from their ability to focus on innovation and growth.
Despite the broad range of impacts, nearly half of surveyed CFOs hold some optimism, expecting regulatory certainty to improve in the coming year. However, more than 90% recognize the need to bolster their strategies for managing future regulatory changes.
Larger Firms Better Equipped to Handle Regulatory Compliance
Larger firms dedicate more resources to regulatory compliance, whereas smaller firms struggle to catch up. On average, middle-market firms allocate three business days per month to regulatory issues. Sixty percent of middle-market CFOs report that their teams spend 20 to 40 hours monthly on compliance tasks. However, 45% of these CFOs report having dedicated personnel to handle these responsibilities. Larger firms, especially those with more than $400 million in revenue, are far more likely to have such personnel in place (74%), whereas just 4% of firms with less than $400 million in revenue can afford this level of focus.
Figure 3 highlights this disparity, showing the stark contrast between larger and smaller firms. This is key because firms with fewer resources are more likely to face significant challenges in adapting to regulatory changes, meaning their size leaves them more vulnerable to compliance risks.
Non-financial reporting tops the list of regulatory concerns, with 38% of middle-market CFOs citing it as their main source of uncertainty. Half of firms operating in high regulatory uncertainty environments point to non-financial reporting as their primary friction. Antitrust and consumer protection laws closely follow, with 28% and 26% of CFOs, respectively, naming these areas as key concerns.
As regulatory requirements grow in complexity, firms with dedicated personnel are better positioned to manage the increasing burden. Smaller firms, however, remain at a disadvantage, often lacking the resources necessary to stay ahead of regulatory shifts.
Conclusion
CFOs must take a proactive approach to managing rising regulatory pressures. Building dedicated compliance teams and leveraging external partners can help firms stay ahead of the uncertainty linked to evolving regulations. Larger firms, which already allocate more resources to compliance, will likely have an easier time adapting, while smaller firms could avoid falling behind in prioritizing readiness. With regulatory uncertainty affecting day-to-day operations, long-term planning, and access to capital, middle-market firms must develop agile strategies to minimize disruption and safeguard their growth. Investing in compliance today will pay dividends in a more stable future.
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Methodology
“How Regulation Compounds Uncertainty’s Burdens” is the latest edition of the PYMNTS Intelligence Certainty Project. We drew on insights from a survey of 60 CFOs from middle-market companies conducted between July 31 and Aug. 7, 2024. Ninety-eight percent of the businesses have operated for 10 years or more, with 55% generating at least $400 million in annual revenue. This monthly project tracks trends across operational areas of companies generating $100 million to $1 billion in revenue. It rotates between CFOs, heads of payments, and heads of product to capture uncertainty’s sources, impacts, and the strategies executives employ to navigate increasingly complex regulatory and business environments.
