82% of financial institutions rely on ‘tactical work arounds’ on regulation

GFT has shared the findings from a global research project aimed at uncovering the attitude of the global investment banking community to ‘The New Normal’ – a constant state of regulatory change.

 

The research surveyed 66 organisations across capital markets, including global and domestic investment banks and CCPs (Central Counterparties) from the UK, mainland Europe, North America and Asia. An overwhelming majority of respondents agreed that their organisation now operates in ‘The New Normal’. Yet despite a deep understanding of the impact of regulatory change, most organisations fail to capitalise on regulation to drive strategic investment and business change – relying instead on tactical work-arounds.

 

Key findings from the research:

Ø  95% of respondents agree that their organisation now operates in ‘The New Normal’ – a constant state of regulatory change – while 89% think their organisation has already gone past a tipping point in attitude and approach. These respondents believe the tipping point was reached just over 2 years ago (27 months)Ø  Surprisingly, even though respondents believe the state of constant regulatory change has been in place for ~2 years and will continue, most respondents (86%) admit that their organisations pursue tactical work-arounds to meet regulatory requirements. Of more concern is that only 18% of respondents view regulation as an opportunity to drive strategic investment and business change

Ø  Currently, too many financial institutions are approaching regulation from a tactical, rather than a strategic standpoint. Over half (53%) of respondents’ organisations tend to view regulatory projects from a compliance sign-off perspective (or box-ticking exercise), leading to a ‘legacy of technical debt’

Ø  Most respondents agree that since the financial crisis, regulatory change has increased focus on compliance rather than business innovation. Surprisingly, only half (53%) of respondents feel that regulatory change has helped drive consolidation of their business functions

Ø  The majority (85%) of respondents believe their organisation has been able to make better business decisions since the financial crisis, based on insights of data provided as a result of regulatory changes. However, of those who assess the potential business impact, only half (55%) re-assess their business with every new regulatory change

Ø  The majority (85%) of organisations measure the impact of regulatory change but only half (48%) act upon the findings

 

Gareth Richardson, UK MD at GFT commented: “Banks realise that being aware of and prepared for regulatory change is the only way to effectively manage it. But, based on GFT’s extensive experience advising the top global investment banks, we know that to gain a competitive advantage in ‘The New Normal’ environment, banks must go beyond compliance and approach regulation strategically rather than tactically. In order to succeed in ‘The New Normal’, banks need to fundamentally change their operating models, and be flexible to the deluge of new regulatory change being imposed on them.”

 

Joan Carles Fonoll, USA MD at GFT, commented: “This piece of global research has demonstrated how the various jurisdictions approach regulation differently. In the US, for example, regulations tend to be more prescriptive, whereas in Europe they are usually subject to interpretation by the organisation in question. This is evidenced in the research, whereby US banks tend to view regulation more from a compliance perspective, rather than as a driver of consolidation and innovation.”

 

Chris Ortiz, UK MD at GFT, commented: “It is also clear that visibility and duplication of regulations internationally pose another significant challenge for global banks, as business climates differ worldwide. Basel III rules are set internationally, but it is up to the individual country’s regulator to enforce them according to their own local policies.”