Another Fine Mess?

  • Bernd Richter, Partner at Capco

  • 23.06.2015 01:00 am
  • undisclosed , Bernd Richter is a Partner in the Capital Markets and Banking domain at Capco’s office in Frankfurt. His main focus lies in transformation and digital projects in the areas of corporate and transaction banking, investment banking, and asset and wealth management.

Fines aren’t fine any more. That should be a message resonating loud and clear around financial institutions, as another year of the rolling regulatory tsunami gets fully underway. We’re braced for the ever-rising tide of compliance-related complexities and non-compliance penalties. We need more than ‘business as usual’. Why?

Because the numbers are truly astounding. As of June 2015, banks had paid over $300 billion in fines since 2010 (source: Capco research). As part of the ongoing pursuit of compliance, global retail bank IT spending is set to rise 20% over the next four years, and is predicted to hit $150 billion in 2018 (source: Ovum).

What do these astronomical numbers tell us?

First, the regulatory machine is costing financial institutions some serious money. Second, an enormous sum is being allocated to technology.  Third, this fortune is failing to fix the ‘fines problem’.

Meanwhile, regulatory reactivity is just not working. Budget constraints often mean only the most urgent compliance projects are implemented, in what has become a game of regulatory compliance Russian roulette. Just putting out fires is now clearly as expensive as it is exhausting and inefficient. But what can be done to start making a definitive difference?

The real answer demands a mix of cultural shift and effective technology. We have to achieve a settled state, where the current rolling reaction to regulation is replaced by a predictable and productive new approach. The goal needs to be Regulatory Maturity.

So what is Regulatory Maturity?

It can be described as the ability to deal consistently and cost-effectively with the evolving, cross-jurisdictional demands of the regulatory tsunami. And how are we going to achieve it? The answer lies in a resource that all financial institutions possess today and in abundance: data. Data and its effective handling have the capability to transform financial institutions’ responses to the demands of compliance.

Most regulatory compliance resolves sooner or later into an ability to marshal the right data, in appropriate formats, to establish visible compliance. If you can’t do that in time and to the standards demanded, you fail to comply and fines follow. Get it right with data and compliance becomes a whole lot easier.

But how should institutions utilize data to achieve Regulatory Maturity?

The most profound shift we need is away from the ‘store now, analyze later’ approach.  We need to move to a data handling and processing approach that is much more dynamic and of the moment. The imperative is to ‘gather, integrate, analyze and interpret’ - all in real time.

Making this happen will demand a new and positive data culture, backed by effective technology. It will draw on the expertise of financial technology experts. It will revolutionize the current reactive culture around compliance. Regulatory Maturity will establish beyond any remaining doubt that compliance doesn’t have to be a Russian roulette game any longer. It can be consistent, predictable and future-proofed – even in a climate of extreme regulatory complexity. Fines are no longer fine. The good news is that they don’t have to be.

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