The Challenge of Regulatory Implementation: A Strategic Approach

The global banking industry faces difficult challenges due to lower profitability and returns, complex infrastructures and the proliferation of new regulatory measures.

Large banks must deal with multiple jurisdictions and multiple timetables for new regulations. Addressing these interrelated challenges will be central to banks’ ability to regain and maintain high performance.

Many banks have engaged in cost-cutting initiatives, but few have made the material structural changes needed to operate profitably in this new environment. Banks must address three significant challenges in parallel:

• Increasing profitability and lifting returns on equity.

• Simplifying infrastructures that are too complex and costly for current operations.

• Effectively implementing far-reaching and complex new regulations.

A strategic approach to regulation is the most visible and pressing of these concerns.

Most organizations focus on differences across the regulatory landscape. Accenture believes, however, that one of the keys to an organized, effective response to regulation is commonality—finding regulatory elements common to various requirements across geographies—and addressing them through an integrated approach to avoid reworking and confusion.

Many banks are putting large-scale change programs in place to deal with regulatory initiatives. The key to success is to determine in which parts of the business the bank wants to remain and to steer toward that future.

• It is highly unlikely banks will be able to keep the same business model and simply plan on absorbing the impact of the new regulations.

• Banks should also institutionalize capital performance measures within their business strategy if they are to support the overall success of such response programs.

• The cost of compliance is high but those organizations that institute a centralized, strategic regulatory response program have more control over managing and optimizing their investment in compliance.

Financial institutions have a range of options regarding the implementation of responses to these new regulations. These range from basic compliance to a comprehensive, optimized outcome that uses the regulatory response as a lever to make needed changes to the business model.

Banks must establish priorities and determine what resources and funding will be needed to reach these objectives through the appropriate path. The framework for regulatory response needs to be closely tied to the bank’s overall strategy. The best approach to complex regulatory demands is to organize them into common themes for implementation.

Multiple regulations should be broken down into specific components so that the common aspects of multiple requirements can be dealt with in a single solution.

At a minimum, banks will need to set up effective governance for their regulatory programs; transform and align finance and risk functions; revamp current client-on boarding and data collection processes; establish stronger frameworks for operational risk; and develop crisis management plans.

Accenture has created an extensive range of assets and tools to help organizations implement compliance programs and create value from optimized implementation. These tools help address:

• Change identification—tracking rules and determining impact.

• Change management—setting timelines, creating program structure and architecture.

• Change delivery—solution architectures to support compliance capabilities for major changes.

• Sustaining compliance—architectures to support firms creating their own capabilities to sustain compliance.

While these assets and tools are effective as individual actions, they are much more effective as part of a comprehensive approach to the regulatory challenge.

Steve Culp is the managing director–Accenture Risk Management. Based in London, he has more than 20 years of global experience in strategy definition, risk management, enterprise performance management and delivering large-scale finance operations engagements.

Adam Markson is executive director–Risk Management. Based in London, he specializes in investment banking, capital markets, data and operating models and finance, risk and middle office technology.