Just a few weeks ago, I had the opportunity to moderate a very dynamic and thought-provoking regulatory roundtable in New York that featured DLA Piper partners Jerry Francese and Jeff Hare, and Ernst & Young’s Ron Giammarco. These fellow thought leaders are on the front lines advising financial institutions daily on best practices surrounding regulatory issues. We discussed key highlights of the current banking industry, including the forces that have driven the industry to where it is today, some of the challenges, and why those challenges have led to new regulations (e.g. Dodd-Frank CFPB: UDAAP, Fair Lending, Complaints, FATCA, AML Basel EMIR).
The credit crisis, consumer protection mandates, and improving the fiduciary duty and trust in the financial market continue to drive new regulation. One thing that was abundantly clear throughout our conversation: regulatory spend has become the top priority in banking. The most-wanted technology for bank CIOs over the next 3-4 years will be regulatory and risk management technology. According to a recent Celent report, the financial industry is expected to spend in excess of $50 billion on risk and regulatory initiatives globally by 2015.
"The most-wanted technology for bank CIOs over the next 3-4 years will be regulatory and risk management technology."
Regulatory fines can now cost banking organizations billions of dollars and bring devastating reputational costs, not to mention the threats of criminal prosecution against banks as well as responsible individuals. The largest financial institutions are looking at ways to protect themselves and ensure visibility into risks ‘real-time’ at the C-level, down to specific lines of business. They need to be able to quickly assess the impact, proactively manage risks and identify high-impact control issues.
Banks need to find ways to more effectively manage compliance costs, not only to minimize the impact upon the consumer, but to the bank’s revenue as well. As far as consumers are concerned, this means ensuring they aren’t bearing the brunt of costly regulation. This entails managing the customer experience and ensuring ‘de-risking’ by divesting of high risk businesses, certain products and services, while being mindful not to drive the consumer to seek financial products and services in un-regulated or “under-regulated” markets.
How can technology help?
Technology can and must play a crucial role in adhering to increasing regulatory compliance mandates, while ensuring that the race to compliance doesn’t result in more manual processes, increased headcount and technology solutions that are not agile enough to manage and change as risks and regulations continue to evolve. If not approached with an eye toward simplifying, the resulting manual maintenance of disparate systems opens organizations to human error, non-compliance and other risks. In order to simplify compliance and engage both customers and regulators, successful regulatory control projects should drive business benefit and lead to large-scale simplification.
The round-table discussion further validates the industry view that, in order to achieve this, financial institutions are best served by unified, flexible and re-usable solutions that are agile enough to respond to remediation efforts, new controls and evolving business needs. Successful financial institutions can provide full transparency across multiple lines of business, regulatory processes, rules and operations. The prerequisite for doing this is having solutions in place that span from front office to back office, streamlining processes, rules and controls to ensure they are part of ‘business as usual’. The right technology can provide the right infrastructure to not only ensure controls from sales (front-office) to the back office but with full auditability and transparency of risks to C-level manage. This ensures proactive and controlled risk management. Many solutions on the market today don’t meet the needs of large complex institutions that operate across multiple geographies, products, lines of business and customer types. Regulatory programs are generally risk-based and this means technology needs to adapt to an institution’s specific risks and needs.
I want to thank Jerry Francese, Jeff Hare, Ron Giammarco and several attending press for participating in the New York roundtable.
NEW Simplifying Business Processes to Ensure Strategic Advantage in Banking