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Banking Newsletter - March/April 2014

This edition covers local and global regulatory developments, using social media for customer engagement and the latest in real time payments.

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Banking Newsletter - March/April 2014

ASPAC Banking Regulation 

The ASPAC banking industry is on an ambitious journey; one with diverging paths and a destination that’s still not quite clear.

Driven by the global regulatory reform agenda, existing banking business models are being reshaped as regional pressures build to meet not only existing but a constant rush of new regulatory requirements.

For banks to successfully navigate their way, they must – as the recent KPMG report Evolving Banking Regulation ASPAC Edition discusses – embrace change.


Banks are moving from being global to regional, product focused to customer-centric, to rebuilding trust and pushing RoE above the cost of capital.


These are some of the fundamental ways they can meet the demands of regulators, customers and investors; while staying competitive in a rapidly changing environment.


A change of direction

Regulation and the after-effects of the Global Financial Crisis (GFC) are forcing banks to make significant changes.


This change is happening on a global level.


However, it is only now beginning to impact ASPAC because United States (US) and European banks are reshaping their activities in the region as changes in the major markets are impacting the regulatory philosophy in many ASPAC jurisdictions.


Such changes (in behaviour, structure and business operating models) will impose substantial costs on both the banks and, ultimately, their customers. The European edition of the KPMG report shows that in Europe the costs of regulation now exceed the benefits. This is an issue that ASPAC will have to monitor closely.


Change within ASPAC must also take into account any potential problems to Asian markets that come from global, systemically important banks (as occurred during the GFC). Today, as the report notes, regulators in ASPAC are taking steps to help insulate their markets, including local recovery and resolution plans and subsidisation of local operations.


The road less travelled

This is an environment of rapid change - one that is resulting in new and ongoing challenges that simply haven’t been encountered before: certainly not in such a large scale.


To stay competitive in such a financially unstable environment, banks must strive to meet both the current and future regulatory requirements of capital, liquidity and recovery and resolution planning. This is especially important for those who are focused on their Basel 3 implementation and may not be prepared for tougher requirements on the leverage ratio risk, risk-weighted assets and stress testing.


With these changes in mind, the KPMG report looks at five areas where banks must reform their strategy, business and operating models, governance and structure.


1 Structure
Major structural change is being forced by regulatory requirements. This includes splitting global entities into smaller, local and/or separately regulated subsidiaries.


2 Conduct, markets and culture

Conduct risk must become a core part of a bank’s strategy and include a shift in culture through tone from the top, policies, hiring practices, incentive structure and embedding values.

 

3 Data and reporting

Data management is critical. Banks need the right data to develop relevant products to consumers and meet increasing regulatory demands for reporting and disclosures.


4 Governance and risk
Banks will need to significantly upgrade governance risk management processes, consider how to form a group-wide view of risk, and consider business line and geographical/regional risks.


5 OTC derivative reforms

Significant progress has been made in implementing Over The Counter derivative reforms with more requirements  expected to come into force in the next year.

 


For a detailed look at the challenges and changes facing the banking industry, download the recent KPMG report Evolving Banking Regulation ASPAC Edition – Regulation driving business change.

 

Andrew Dickinson

ASPAC Banking Sector Leader

+61 2 9335 8952

adickinson@kpmg.com.au

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 In this issue

Financial services regulation

Financial services regulatory change
Regulation can involve change and complexity, however many organisations use regulatory to underpin business transformation and drive change.

Evolving Banking Regulation: Regulation driving business change (ASPAC Edition)

Evolving Banking Regulation: Regulation driving business change (ASPAC Edition)
This paper analyses the emerging regulatory requirements for banks including structural reform, governance and the possible emergence of 'Basel 4'.