Strategy of regulation or regulatory strategy

For many years now, new regulation comes out as a top concern in financial industry surveys. Implementing the vast amount of new regulation proves to be very challenging for all stakeholders, even regulators themselves, in terms of scoping, budgeting and timing. Moreover, the new regulation is truly transforming the context to do business at various levels and it should be top of mind in strategic thinking, business model design, management and day-to-day client servicing and processing.

Implementing new regulation is not just about becoming compliant anymore, it is all about anticipating and understanding the transformation the regulation is leading to in order to make the change happen in a value adding and winning way. Regulation are setting the rules of the game and how can you be good at playing the game if you do not understand the rules?

So, one should expect that in this transformational context financial institutions have organized themselves in order to cope with this externally imposed transformation but surprisingly we observe that only few institutions have incorporated the constant regulatory changesappropriately in their strategy and governance, enabling them to truly adapt themselves to the new financial world.

Some banks still seem to be in denial mode from many perspectives, opposing against what they consider to be ‘overregulation’ and considering the new regulation to be something ‘external’ put on top of them rather than something that is changing them from inside out. As a result, banks are often dealing with new regulations in simple project mode, applying merely classical project portfolio management governance and methodologies in a bottom-up, article by article way without top-down strategic direction.

Existing process and IT systems are adapted in a fragmented way where it’s required without looking at the broader picture. As a result, many banks seem to be running constantly after the facts, lagging in implementation, spending big money inefficiently in a cost-reduction context, flirting with non-compliance and -what’s worse-  not realizing the transformational nature of what is ongoing until losing business. Having the right governance and organization in place to incorporate new regulation - implementing changes effectively and efficiently - will therefore become a major competitive advantage in itself.

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Initio has investigated the topic of regulatory strategy and governance and created a set of tools and best practices that will allow financial institutions to put in place sound governance and management of regulatory change. 

Best practices examples

  • Understanding the external regulatory process (e.g. Lamfalussy framework) will allow you to better assess its impact and design the governance process to deal with it in your organization.
  • Understanding the rationale and drivers for regulatory change will allow true strategic thinking and facilitate understanding and anticipating regulations.
  • Regulatory change awareness should be created throughout the organization allowing to create a truly participative model to deal will the vast amount of change.
  • Regulatory change knowhow should be managed and assessed internally in a centralized way.
  • Knowledge of new regulation must be distributed in a focused way towards target audiences.
  • Board, executive committee and senior management must be engaged in regulatory governance in order to provide them with information for strategic decision taking and in order to get direction.
  • Having a top down overall view on the impact of all upcoming regulation will allow you to gain efficiency in implementing change identifying in one go impact for each process, system and function.

Having a strategy to deal with regulation will allow you to include the regulatory change in setting your strategy and implement the regulatory change effectively and efficiently. It’s a relatively small effort with a high return, reducing the high expenditure on the classical regulatory change projects, ensuring compliance and shaping your strategy and business model for the future.

Initio is at your disposal to discuss this topic more detailed and provide more guidance allowing you to implement the appropriate governance to deal with the new regulation.

Do not forget to sign up for the White Paper which will be available in the coming days.

Franck Van Hoornweder, Risk & Compliance Business Line Manager