With scrutiny on banks tighter than ever, it is imperative that they are on the front foot of changes here and internationally, and are prepared to meet compliance needs.
If bank executives thought this year was busy with the ongoing toil of strengthening their balance sheets, e.g. building capital, liquidity and moderating leverage so as to be ‘unquestionably strong’, a slew of regulatory changes and challenges on the horizon will see this continue in the foreseeable future.
Given the expected finalisation of Basel III/IV and the Fundamental Review of the Trading Book (FRTB) in 2018, the major banks are faced with a disparate confluence of both local and global regulatory changes. Whilst the major banks’ implementation of IFRS 9 is looking well in hand, the implications of the European Union’s General Data Protection Regulation (GDPR) and Australia’s Notifiable Data Breaches Scheme (NDBS) are expected to be far reaching and problematic in how personal information is managed and protected.
The European Markets in Financial Instruments Directive (MiFID II) is anticipated to have sweeping effects and to significantly impact Australian banks that operate branches or subsidiaries in Europe (and those transacting or trading financial instruments with European firms). The changes affect how applicable Australian businesses access and pay for research, process KYC, data management and record keeping, trade transparency and reporting, as well as best execution. Add in Brexit for our banks with a UK presence and you have a significant suite of regulatory risk projects to complete in a short time.
On the local front, despite the initial outrage and cost of the Major Bank Levy announced in the May 2017 Budget, this is expected to pale into significance compared with the long run impact of the Bank Executive Accountability Regime (BEAR). The BEAR shouldn't be viewed as another ‘tick-the-box’ compliance exercise. Its success and better accountability depends on how well it can be aligned to business as usual and instilled into the way banks deliver their services and products.
Moreover, Accountable Persons and employees need to be trained and be fully aware of how BEAR impacts them, their role’s accountability and responsibility, and how this fits into their organisation’s wider accountability map. It’s critical that key stakeholders are engaged as early as possible, especially as this is expected to significantly change the ways of working across businesses and functions. Consequently, it’s imperative in the early stages to clarify involvement and ownership of the operating model once BEAR is implemented. How a bank, its board and accountable persons approach BEAR and embed it will ultimately say a lot about the culture of the firm, its leadership, and people.
In a relatively modest time frame, Comprehensive Credit Reporting and Open Banking will also revolutionise the provision of banking products and services by breaking down customer inertia on changing banking service suppliers and intensify competition for customers. On a more positive note for the industry, opportunities will unfold as the Open Banking regime extends into other sectors, such as energy and telecommunications (moving towards an open data framework).
Moreover, if we consider ASIC’s conduct risk regulatory responses such as: the Design and Distribution Obligation (DDO) upon financial services providers for financial products, the Responsible Lending investigations, Enforceable Undertakings for FX and the expected ones for BBSW, it appears Australian banks have a full regulatory ‘dance card’ in 2018. This will strain already tight resources – which are already suffering from prolonged regulatory change fatigue.