Tactical Strategies Fall Short as Shifting Regulatory Landscape Becomes “The New Normal”

A recent survey carried out by capital markets consultancy GFT found that the majority of investment banking respondents are still approaching regulatory change using tactical workarounds, rather than as a driver for change.

"The regulation is exposing some of these deep-rooted, very tough problems banks knew they had but have somehow managed to limp along year-on-year," Jeremy Taylor, head of business consulting at GFT, told Waters. "There is still a very large percentage of the market which is still stuck in this kind of tactical, box-ticking mindset."

The inertia of dealing with core multiple systems, continued presence of internal silos and short compliance deadlines were all identified as key obstacles to not just complying with, but thriving under, an evolving regulatory environment.

With regulations such as BCBS239 exposing underlying data issues and MIFID II creating new client classification headaches, banks need to adopt a centralized and standardized process for the adoption of regulatory change processes.

Taylor also points to the need for banks segregate collateral cash and non-cash assets as a result of regulatory change — "an incredibly expensive exercise if you've got to completely re-engineer ledgers and accounting systems that are 30 years old."

With regulations such as BCBS239 exposing underlying data issues and MIFID II creating new client classification headaches, banks need to adopt a centralized and standardized process for the adoption of regulatory change processes

'Antiquated'

While he believes technology vendors may not be able to solve all of the banks' problems, Taylor states that "there are opportunities for some innovative, so-called, fintech companies to provide technology to assist with some of the problems".

"We are all moving towards intraday movement of collateral, financing and liquidity management," Taylor explains. "Frankly, the antiquated technology that is used by the banks is just not fit for purpose."

A change of culture may be harder to implement than any actual technologies however, although Taylor believes investment banks should look to their retail counterparts for examples of how innovation through technology can be successfully implemented.

"There are a lot of good things about the regulation, but it is definitely increasing the cost of doing business for the banks," says Taylor. "If you were going to build some of these investment banks from scratch today you wouldn't start from where they are, you'd come up with a completely different architecture and blueprint — those non-investment banking businesses are looking quite attractive."