A financial crisis brings in its wake more regulation and oversight when the dust settles. However, the recent recession and ongoing economic uncertainty that began in 2008 has unleashed more than its fair share of regulations. These regulations have been, promulgated under the direction of the U.S. Dodd-Frank law, the European Markets in Financial Instruments Directive II (MiFID II), and the Bank of International Settlements' Basel III requirements, among others.
To find out how the industry was coping with increasing regulation, Wipro, jointly with Compliance Week, surveyed managers and executives from 34 financial institutions with annual revenues ranging from less than US $5 billion to more than US $50 billion in the United States, Europe, Asia and the Middle East. These respondents considered roughly a dozen questions about their firms' philosophies and actions taken to deal with intensifying oversight, where regulators want more data, faster, and with a unified view of the regulated entity. The survey responses indicate an awareness of a need to change, and in many cases these organizations are moving forward. But universally, there's work to be done. Read more details in our white paper, 'Surfing the Coming Wave of Regulatory Reforms: A joint study on the US banking industry.'
We discovered there were five factors shaping the industry's response to the risk-and-compliance storm:
- The transition of risk IT from support to a business function: We estimate that integrating risk IT into mainline systems not only provides data to meet regulators' increasing demands, but can also save 1% - 1.5% of regulatory capital.
- A focus on data quality: Banks and financial institutions must implement data-quality and governance frameworks with the objective to improve data aggregations, achieve higher reporting quality, and deliver more fine-tuned dashboards and information—for regulators as well as for management.
- Centralization of the risk and compliance functions: This can happen either by unifying risk and compliance functions within the individual organization's management and reporting hierarchy, or by moving to more centralized, federated compliance IT programs.
- The rise of risk and compliance utilities: Two factors are steering firms to the utility model. The first is the convergence of risk and compliance regulations across jurisdictions that previously had very little in common. The second is the mercurial nature of regulations as they evolve—and, presumably, will continue to change over time.
- Provision of enhanced, enterprise-wide visibility into liquidity: More than merely a means of satisfying regulators, enhanced visibility into an institution's financial footing can become a source of competitive advantage.
What has been your organization's response to the increasing compliance and regulatory pressures in the environment? Do write in with your thoughts – we'd love to hear from you!