Many years ago, as a young auditor with Arthur Andersen, I was informed by my managing partner that our role was to record history and not make it. With all due respect to my former boss and mentor, he was wrong because compliance is a route to creating competitive advantage due to the compliance burden becoming so heavy and riddled with constant change.
The challenge is to embrace compliance not from fear, but as an opportunity to do what your competition cannot: write compliant business more effectively, and manage the constant change faster than the regulators can dream up new rules. For banks and financials, compliance has become an opportunity to create competitive advantage, and the raft of major regulatory changes coming into effect in 2018 is adding fuel to this fire.
There are two aspects to this: utilizing technology that allows for fast change and work management, and secondly, getting ahead of the regulatory change curve.
We’ll deal with the second of these first: the major regulatory changes affecting banking and financials in 2018.
US Stress Tests & CCAR
Federal Reserve Chair nominee, Jay Powell is about to take up his office in February, however he has been a serving board member of the Fed since 2012, so he is no stranger. Powell is also a proponent of more effective CCAR (Comprehensive Capital Analysis and Review) aka “stress testing” and making the whole process more transparent.
Managing CCAR effectively represents a strategic opportunity for banks, small and large, to automate key processes that directly impact their capital reserves position. Automating key processes will allow banks to bake-in compliance at source, while streamlining monitoring and reporting and developing an holistic approach to compliance that remains cost-effective.
In a sector that is seeing increased M&A activity, with the attendant regulatory scrutiny, effective CCAR management will be crucial to individual banks growth strategies in 2018 and beyond.
Nothing drives an equity market down faster than uncertainty, and Brexit has added a unprecedented degree of volatility and risk to the markets. Not only is the UK affected, and it is one of the largest financial powerhouses in the world, but the soon to be divorced EU is also strongly impacted notwithstanding its greater size as an economic bloc.
The ability to respond to this challenging environment, fraught with change and an unprecedented raft of new rules and regulations introduced at a frantic pace, is going to test the ability of compliance and operational teams as never before.
For those nimble enough to adapt faster than their competitors, the rewards of enhanced market share await, both within the UK and within the Eurozone.
European Directives Become Effective January 2018
Two major EU Directives become operational in January 2018: the General Data Protection Regulation (GDPR) and the Second Directive on Payment Systems (PSD2).
Of note is PSD2, which allows non-banks to handle customer data, breaking the banking monopoly over their own customer data and opening the door to managing who may have access to their own information.
By creating the means for their customers to manage access to their data, banks and financials will be able to get first shot at being the data manager, plus increase customer engagement and cross-selling opportunities.
This approach entails digitizing customer data across multiple banking systems into one coherent silo with secure permissions established to manage data access in compliance with customer requests.
International Financial Reporting Standard (IFRS 9)
IFRS9 provides a unified classification system for financial assets and value measurement.
The purpose is to address deficiencies in existing valuation and measurement methodologies which are thought to have contributed to the over-valuation of financial assets involved in the financial crash of 2008.
IFRS9 requires banks to create a lifetime view of customer losses, and this in turn means unifying customer data held in different systems across the organization.
Again, digitization and unifying data drawn from disparate systems within a single data management platform will be key to meeting the requirements of IFRS9.
European Union Banking Transparency & Reporting – MiFID 11
Revised Markets in Financial Instruments Directive (MiFID II) is a vexing piece of EU legislation for compliance and legal teams alike. MiFID II covers a range of issues, from data recording through to trading, and increasing transparency into research costs and transaction fees., backed by additional reporting.
Both sellside and buyside firms will be affected.
Some forecasters are predicting a drop in research costs of around USD $1.5BN annually, however reducing research costs while improving research quality and compliance with MiFID II is a significant opportunity to gain competitive advantage in an exceptionally lucrative market.
Utilizing Technology to Integrate Compliance Digitally Across the Organization
HighGear, the leading no code workflow application platform empowers highly regulated organizations, such as banks and financials.
HighGear breaks data out of silos, and delivers transparency into work and workflows in real-time.
HighGear allows banks to be flexible in how they shape their business and financial systems, ensuring they are consistent in delivering customer value, but baking-in compliance at source in a secure and holistic fashion.
Using HighGear, banks, financials, and insurers can achieve critical business objectives while maintaining full compliance with their regulatory demands:
HighGear will collate all of your data into a unified view that can be adapted to the needs of your organization and the people who need access to it (including your customers).
Secure Data Access based upon role-based permissions, only allows access to data the recipient is entitled to access.
Eliminate multiple system syndrome, with HighGear acting as the employee interface which also pulls and updates data, saving valuable employee time and reinforcing security of legacy and point solution business systems.
Gain visibility on assets through unifying data from disparate systems, including valuation systems and tracking financial assets and associated data over time wherever it is captured.
Improve productivity and efficiency through integration with multiple business systems, allowing for process improvement, backed by an Audit Trail that meets all major compliance and regulatory standards.