09:13 AM
Rex Gooch, SunGard
Rex Gooch, SunGard

The Regulatory Pressure Cooker: Retail Banks Evaluate Their Budgets

Banks must spend wisely on the increasing regulatory burden.

Regulatory change continues to be a top priority for firms around the world and is contributing to high stress in the banking industry, according to “The Regulatory Pressure Cooker,”a new research report on regulatory readiness from SunGard.

One of the most interesting sets of findings from the report relates to retail banks. Seventy percent of retail bank respondents plan to increase their compliance budgets over the next two years. Notably, budgets will rise by an average of 16 percent.

Nearly the same number of respondents – 68 percent – plan to increase the number of related staff over the next two years, and 58 percent expect to spend more specifically on technology. Further, 63 percent plan to increase their reliance on external specialists and advisors. The same number expects to increase the size of their compliance leadership team as the C-suite relies on them more and more.

As with any time the purse strings loosen, firms must carefully consider where their spend will have the most impact. It’s not just a question of hiring more people; it’s about hiring well-qualified people. It’s also essential to have a strong chief compliance officer who has a vision of how to implement regulatory change across the firm. The ability to monitor regulatory risk and make decisions to address that risk will increasingly rely on technology – specifically automation and reporting. When technology or data is isolated, you may get visibility in one area of your business but not another, so you can’t accurately identify enterprise-wide risk.

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And when it comes to investing in technology, it’s critical to choose a flexible and holistic platform. Retail banks and other firms need broad solutions that can adapt quickly to changing regulations as well as support point solutions.

However, they must also remember the data. Making sure the data is clean is a key requirement. Increasingly, firms are investing in solutions that clean and consolidate data, choosing cross-functional platforms, so the data can easily be shared across the firm as needed. This gives the stressed C-suite a holistic, consolidated view across functions.

Over the last few years, firms have invested in understanding current risk by internal audit as well as external consulting firms. They’re now ramping up to make sure the C-suite has the confidence in what’s being undertaken and where they can reduce risk. One option is to identify manual processes that should be automated and free up existing staff to become increasingly agile and focus on other or new risk areas as the landscape changes. If firms can do that, then they will be well placed for future regulatory change.

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Focusing on the Future

The regulatory readiness survey found that 56 percent of retail banks believe that the need to deal with regulatory change means that their organization cannot focus enough on its core business activities, and 30 percent say it has limited their ability to invest in new growth opportunities.

In addition, many are finding it difficult to keep up with regulatory change. In fact, 58 percent of retail bank respondents say the pace of regulatory change is too rapid to prepare for adequately.

Retail banks are not in the compliance solutions business. And while retail banks need a strong compliance officer in-house, it’s more efficient to rely on third-party experts to build the tools, so banks can leverage those tools and get back to their core competencies.

Rex Gooch is vice president, product strategy for Sungard's Protegent


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User Rank: Author
3/3/2014 | 7:41:09 PM
re: The Regulatory Pressure Cooker: Retail Banks Evaluate Their Budgets
Making use of the investments in compliance that banks have made the last few years to improve customer experience is probably going to be a big differentiator over the next few years. Some banks will leverage that investment to improve their business, and I suspect others will fail to do so for a variety of reasons and will be seriously hindered in customer retention as a result.
User Rank: Apprentice
3/3/2014 | 5:24:10 PM
re: The Regulatory Pressure Cooker: Retail Banks Evaluate Their Budgets

Compliance costs are escalating, and they can take a huge bite out of implementing a new product (system). It's unrealistic to think that increased compliance won't lead to increased costs, and you can see the pressures that IT departments are under, because their budgets are not growing as fast as compliance requirements demand (or other requirements!).

I've posted some thoughts of my own that came to mind after reading Rex' post here. Including the SEC estimates of crowd funding compliance costs:

User Rank: Author
3/3/2014 | 1:07:32 AM
re: The Regulatory Pressure Cooker: Retail Banks Evaluate Their Budgets
It's certainly not surprising that spending on systems and staff to support compliance continues to increase -- although the reported 16% increase in budgets is quite striking -- that is a huge increase when we consider a 3-4% overall IT budget increase a good year (in terms of increased IT spending). Hopefully some of that spending is on solutions/tech such as analytics, storage and content management that can be leveraged in other areas, not just compliance.
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