The pace of regulatory change may have become part of the “new normal,” but banks still face intense pressure and uncertainty about how regulations will look in the future. Indeed, the top challenge faced by banking respondents is the increasing demand from multiple regulators in multiple jurisdictions, cited by 78 percent of respondents to our 2017 Global Risk Management Study (see Figure 4). New directives such as IFRS 9 – Financial Instruments (IFRS: International Financial Reporting Standard), Basel Committee regulations (particularly the fundamental review of the trading book and the standardized approach for measuring counterparty credit risk) and the European Union’s General Data Protection Regulation continue to dominate resources at many banks, while Basel III reforms (Basel IV), could dwarf the impact of any of those.
In recent years, the relationship between banks and regulators has changed around reporting, measuring and handling risk.
Previously, banks may have viewed regulators as an entity that imposes legislation upon them. Today, the relationship appears to have become more open and collaborative. This shift requires a change of mindset among banks. They should put in place a more proactive way of engaging with regulators and see them as one of the stakeholders with whom they have to engage. Our 2017 study finds that there is some way to go before banks are ready for this new relationship: 59 percent say they need to upgrade their systems and capabilities to provide more transparent reporting to regulators (see Figure 1).
This can be a major incentive for banks. The best can help to shape the regulatory environment in emerging areas of technology. After all, bankers understand many challenges and opportunities (e.g. cyber risk, blockchain and fraud) better than regulators. Leading organizations should be engaged in defining new standards and processes for the industry, pulling regulators forward in the process.
Considering some regulators increasingly require financial institutions to give them more access to their underlying risk data, please state to what extent you agree or disagree with the following statements. (Base: 159 – banking)