The Financial Stability Board (FSB), chaired by the Bank of England’s Mark Carney, recently warned that banks have flagged their concerns about missing regulatory deadlines, with Basel III being highlighted as a particular concern.
Some of the problems have been around translating Basel III law into the domestic legal framework. Other banks have spoken about the challenges in updating their IT systems in time to meet reporting requirements.
And there in lies the rub, for banks. It isn’t just the fault of Basel III. Regulators are not necessarily very prescriptive when it comes to banks having to adhere to certain diktats. Very often, the terminology is left open to their interpretation. Obviously,
if it's interpreted in the wrong way, this could leave banks wide open to non-compliance and from there, potential prosecutions and fines if they fail to meet the bar.
The whole IT systems issue is the other main challenge. For a start, the sheer weight of regulatory missives facing banks puts them under enormous pressure. Having to gear up a bank’s systems and processes to ensure it can properly adhere to different regulatory
instructions is an enormous undertaking.
Added to that, a hurdle that banks often face is the disconnect and tension between IT and the business in the face of regulatory adherence. It is really important to establish ownership and involve the business – chiefly the compliance and regulatory teams
– as soon as possible. If this doesn’t happen, regulatory systems can be built without the business input, so will fail before they even start.
Linked to this is the problem of interpretation between the regulator and the bank. Due to the fact that regulation can be ambiguous, the requirements goal posts often change when the systems to adhere to it are being built and processes are being put in
place. Scope creep makes it nigh on impossible for the IT team to deliver what is required – because no one really knows what the requirements are.
The FSB is only saying what the industry has been feeling for a long time. The sheer volume of regulation is a struggle, even though everyone knows that regulation is essential in the bid to create a better, more transparent banking system. Better communication
with the regulators, clearer articulation of the requirements and a more harmonious relationship between IT teams and business banks will be a good start towards coping more effectively with regulatory change.