Things are tough for banks at the moment – a short walk through the courtyard of St Paul’s, London is likely to provide a fairly good idea of the level of ire currently directed at the city’s cathedrals of capitalism. Criticism of banking practices has been widespread and for once is not limited to the protestors. The financial crisis and the public’s reaction to it has forced governments the world over to seek a system in which banks are greater regulated to ensure that we move forward from the tribulations of the past five years.
This ever-increasing cycle of regulatory enhancement has been gaining pace since the Lehman Brothers crisis of 2008, which further exposed the lack of understanding and transparency around banks’ risks, liquidity and trading instruments. It became clear that bank reporting had to become far more detailed and frequent. Part of the problem was that financial data used to assess risk, did not correspond sufficiently to the data being used to make decisions inside banks on a day-to-day basis.
The New Requirements
The liquidity crisis drove regulators to seek a much more transparent view on banks’ operations to ensure that regulatory principles were being implemented and adhered to. In the past, many banks have viewed regulatory reporting as a necessity, but not treated it as a central part of their business. However, this may change as reporting in future will require banks to provide higher volumes of data, in greater detail, more frequently.
The IT Conundrum
Banking systems have traditionally evolved over years of changes and enhancements in response to regulation and market drivers. In many cases this has resulted in complex and fragmented systems with banks drawing information for the purpose of decision making and reporting from multiple sources. More often than not it is the same data seen from different perspectives as can be seen in the discrepencies that often exist between the financial and risk data sets
Overall, there is a general lack of cohesion and in the past many short-falls in data flow have been bridged with manual processes. Reporting trends means the whole system is now under far more pressure to deliver faster and more reliably.
Addressing the Problem
Many banks have become constrained by their IT infrastructure. A new approach is needed to streamline their systems and processes and provide them with the agility to respond more effectively to change. Key to achieving this is the simplification and standardisation of banking systems and practices. Banks should be looking to build their operations from a consistent system foundation that is understood, integrated with regulatory reporting and structured to allow for change.
The cornerstone of this has to be focused on getting a handle on the data inputs that are used for both day-to-day decision-making and regulatory reporting. In essence, providing one version of the truth taken from one central data source to be used to support internal and external reporting. Reporting shouldn’t be something banks tell regulators, while carrying on with business independently. It should provide a true reflection of what the banks are basing their decisions upon and how they manage their business.
Importantly, banks will also need to look beyond their IT systems if they are to effectively respond to the new requirements. Too often, companies speak of an integrated approach to IT and process management, while neglecting the human element. You can have a wealth of technology at your disposal, but if the different sectors of your business are not working together towards the same objective, then it will be of little use.
The Future of Regulation
It is in everyone’s interests that we strive for a more accountable financial sector that is well placed to face the challenges ahead. But this will involve considerable investment and effort. There is also a need on behalf of the regulators to make sure that the new measures do not prove restrictive and thus encourage banks to move elements of their business overseas.
One thing is certain: regulation is not going to go away. With billions of pounds of tax-payers money unwillingly invested in the industry, we should not be surprised that banks are coming under increased levels of scrutiny. Until the banks regain the trust of the public, regulation and accountability is likely to dominate the agenda.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?