In a bid to ensure the financial services sector is properly and fairly regulated, many countries are changing their supervisory structures and introducing new bodies to undertake financial stability and macro-prudential oversight.
Within the EU, for example, three new European Supervisory Authorities have been established to further integrate supervision on a pan-European level.
And in the US, new agencies such as the Financial Stability Oversight Council and the Bureau of Consumer Financial Protection have been established alongside the Treasury, the SEC and the Federal Reserve.
In Asia, however, we’re seeing less focus on changing the structure of regulatory authorities – and more emphasis on improving their approach and style of supervision.
As they come under increasing compliance pressure from these new structures and bodies, banks will nevertheless have to work with them in order to ensure they operate effectively – especially when it comes to cross border regulation and supervision.
Meanwhile, the reporting burden on banks is also increasing, largely due to:
- the implementation of Basel 3
- the need to provide the information that authorities require in order to assess a bank’s systemic importance and to ensure its recovery or plan for its resolution
- an increased emphasis on detailed stress testing
- the reporting necessary to impose various new taxes and levies on banks
- the imposition of regional and national regulatory reform initiatives such as the reporting required in the US under the Dodd-Frank Act and the newly created Office of Financial Research – along with the trade and regulatory reporting required under the EU’s Markets in Financial Instruments Directive 2 (MiFID2) and EMIR legislation.
What does this mean for banks?
Banks will need to enhance the quality of their data, systems and processes in order to meet these requirements.
In particular, many of the new regulatory measures – for example in relation to market risk and liquidity risk – are stressed measures that banks’ systems may generally be unsuited to produce on time and in a manner that’s sufficiently flexible to allow the testing of certain scenarios.
As they bolster systems and processes and create data repositories when necessary, banks continue to lobby regulators to introduce greater consistency in data provision – on the basis that requiring banks to provide essentially the same data adjusted for local preferences to various regulators across a range of jurisdictions will become an unwieldy and expensive process.