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.

[To learn more about how financial firms are preparing for and responding to security incidents, attend the Acknowledge the Inevitable: How to Prepare For, Respond to, and Recover from a Security Incident session at Interop 2014 in Las Vegas, March 31-April 4.
You can also REGISTER FOR INTEROP HERE.]

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.

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