EY’s survey shows that, for the most part, banks’ compliance functions still follow conventional monitoring, surveillance, and advisory models, with a secondary split based on geography.
Monthly Market Risk Update: April 2024 [SlideShare]
How Banks Turn Compliance into Opportunity
1. How are Banks Turning Regulatory Compliance into An
Opportunity?
Risk management in banking has changed significantly over the past ten years, primarily because
of the rules that came out of the global financial crisis and the fines that were given after it. But
significant trends suggest risk management will change even more in the next ten years.
Three changes are significant for banks and how they work:
1. The digital revolution is making a massive difference in the available data, how it is used, and
how quickly decisions are made.
2. Technological progress speeds up changes in how customers and competitors do business.
3. Hyper-connectivity makes information flow faster and changes how people think and act.
2. The Landscape of Regulatory Compliance Today
A recent E&Y survey of 21 European banks found that most want to switch to a more effective
model that uses technology. At the moment, though, traditional compliance practices are still
the norm.
EY’s survey shows that, for the most part, banks’ compliance functions still follow conventional
monitoring, surveillance, and advisory models, with a secondary split based on geography. Even
though new products come into the market and a considerable rise in digital engagement has
happened in the last few years, professional compliance staff are less likely to specialize in or be
assigned to specific channels or products.
Problems FIs have to deal with
1. Governments are constantly adding more rules about capital or amending existing regulations
around the capital.
2. High overhead costs for deploying solutions to meet these regulations. The penalties for rule
violations are high.
3. Constraints of legacy systems include not enough automation and digitization to keep up with
the speed of regulatory changes.
4. Last is the non-standardized approach, where systems don’t work well together because of sub-
optimal systems integration.
Enter Reg-Tech.
Changes to rules in the financial sector are happening quickly worldwide. The sheer number of
new regulations means financial institutions must dealwith complexity and tight deadlines. Many
FI’s have had trouble making the changes regulators have asked them to make.
In this context, RegTech has built a strong foundation within the ecosystem to help solve this
problem and construct solutions for new and complex regulations and regulatory remediation.
RegTech has also lowered the overall compliance cost for financial institutions (FI).
3. Turning Regulatory Compliance into Opportunity.
Financial institutions that get ahead of regulations and use them to drive organizational change,
economy, efficiency, and effectiveness could gain a competitive edge that could help them grow
or speed up. This is how:
Use the rules to create new ways to do business.
When figuring out how new rules will affect your business, they consider what might need to be
cut back or stopped and what might now be allowed. For instance, understanding the
implications better than competitors helps the company outperform through new products and
ideas.
Focus on capital efficiency, not just on having enough capital.
Much regulation in recent years has been about ensuring FI’s set aside enough capital to prevent
sudden failures or near-failures. Leading FIs seek methods for extracting higher value from the
available non-regulatory amounts of money. One way is to stop doing activities that require much
capital and instead focus on fee-based businesses (example: wealth management) that bring in
stable, predictable income without burdening up scarce capital.
Make regulatory compliance a daily part of the business.
This step improves overall compliance and frees up resources so that it can be used to determine
how new regulations will affect customers, products, and even business models and devise ways
to deal with them before the rules go into effect.
Partner with regulators.
In countries like Canada, FI’s and regulators work well with joint degrees of respect. In such
arrangements, where FIs share their knowledge and ideas about problem-solving, the regulators
can help them find robust solutions. This partnership approach helps avoid cumbersome and
expensive aspects of regulation altogether.
4. Conclusion
Look at the big picture. As the pain of the global financial crisis lessens, financial institutions
shouldn’t hold their breath and hope that regulations will be eased. Shortly, governments and
regulatory bodies will have a more prominent role in financial services, not a smaller one.
The best thing for FIs is to look at new rules as possible ways to get better, not as a burden to be
carried. Talking to regulators proactively helps shape a joint beneficial agenda, which over time
translates into business benefits and a competitive edge for FIs.
Original Source: https://maveric-systems.com/blog/how-are-banks-turning-regulatory-compliance-into-an-
opportunity/