- The ‘more and more of everything’ approach is failing
- Regulatory response is only partially completed more than six years on
KPMG’s annual Evolving Banking Regulation report concludes that many banks and regulatory bodies have not achieved as much as they should have since the crisis.
However as the complexity of the regulatory reform agenda continues to mushroom, KPMG warns that the ‘more and more of everything’ approach will not achieve the desired outcomes for customers, investors or regulators.
Giles Williams, EMA head of KPMG’s financial services regulatory centre of excellence, commented: “The problem is that while we are very much on this journey, no one knows the final destination. The goalposts are constantly changing and additional layers of complexity keep piling up from regulators with differing agendas and conflicting timeframes.
“The ongoing uncertainty is the killer, making effective planning almost impossible. As unanswered questions keep surfacing, it is clear that we are a long way from resolving the complexity of the big cross-border banks.
“The length of time it takes to finalise initiatives is also letting us down. If the recently released structural reforms from the European Commission are implemented as planned in 2017 and 2018, almost a decade will have passed since the height of the financial crisis.”
KPMG’s report predicts that there will be more casualties before the financial crisis is over.
Giles Williams continued: “The waves of regulation are engulfing banks more rapidly than many can manage. The emerging regulation is game-changing and there will be more casualties before things get better.
“The European Central Bank’s comprehensive assessment will be a moment of truth for the European banking sector. Mario Draghi has gone on record saying that a number of banks must fail the upcoming asset quality review and stress tests to ensure credibility in the process is maintained. There is also likely to be a spate of consolidation as weaker players are acquired.
“Despite efforts to create a global regulatory agenda, individual countries and their local regulatory priorities are coming first. This ‘localisation’ is a serious threat to banks being able to operate a sustainable global business model without adding costs or reducing services to global clients. The end of the global universal bank is fast approaching as many global entities have been split into a patchwork of smaller locally or separately regulated subsidiaries. The impact of all of this on local, regional and global economy is the main concern.”
The report also suggests that the banking industry’s existing business models will in large part have to be discarded. KPMG outlines four areas banks must focus on, including structure, conduct and culture, data and reporting, and risk governance.
Giles Williams commented:
“Many banks have already begun to revise their legal entity structure and to reduce and restructure their balance sheets. This, combined with the impact of an emerging ‘”Basel 4”, will dramatically increase the cost of doing business.”
Conduct and culture
“Retail banks are looking to become customer centric, but are finding this hard to deliver given legacy systems, culture and client resistance to change. Wholesale banks are still getting to grips with what client centricity might mean, and regulators in Europe are looking for radical changes in banks’ culture and behaviour.”
Data and reporting
“Banks face three major challenges around data management. They need to hold and use the right data to get closer to their customers, they face increased demands for reporting and disclosure, and they face concerns about inadequate IT systems to help them manage risk effectively.”
“There is a Financial Stability Board drive to upgrade significantly the governance and risk management of banks. While much work is already underway on this, more needs to be done, particularly around improving management information.”
Notes to editors:
Report available here.
This report forms part of the Evolving Regulation series developed by KPMG’s Financial Services Regulatory Centres of Excellence. The series provides an annual in-depth analysis of regulation established post the global financial crisis and the impact on financial institutions. Regional versions of the Evolving Banking Regulation will be released over the coming months.
For further information please contact
Monica Fiumara, Senior PR Manager, KPMG
Tel: +44 (0)20 7694 5674
Mobile: +44 (0)7901 105180
KPMG Press Office: 020 7694 8773
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
 Based on KPMG’s Basel 4 – Emerging from the Mist? publication that predicts a Basel 4 accord may be emerging.