On the surface at least, it’s hard to take away positives in the wake of the financial crisis. Yes, it taught us that we have to manage risk better, improve processes and become more transparent. But it’s the regulators globally that seem to have taken these
lessons closely to heart.
With some banks still struggling to conform to Basel II requirements, Basel III is being hotly debated. It will force banks to hold more capital, and many argue that this will bring the end of ‘cheap money’. In the US, the Dodd-Frank Wall Street Reform is
now signed into law and set to bring a massive overhaul of the financial system.
The regulators are also toughening up. We have seen recently some of the biggest and most public penalties for non-compliance.
Société Générale was fined over $2m by the UK's FSA for failing to hand over accurate transaction reports. It joins a long list of offenders, including Barclays, Credit Suisse, Getco, Instinet and Commerzbank.
So what’s a bank to do?
To meet these regulatory demands, a bank needs to have a centralised, global view of risk. And this requires standardisation across the board. Banks should gather, store and make sense of information from all business lines – on a daily or intra-day basis.
But this is as essential for the business as it is for the regulators because it helps the bank make better decisions. A bank needs to know exactly what its risk exposure is to a company, region or currency, so for example, when cross-selling, it can see
where the opportunity lies and where not to over-commit.
To make the most of this capability, banks need to put good governance at the core. This calls for change, both in the bank’s culture and in the way it operates. It involves training staff, introducing new processes and investing in systems that monitor
the entire risk process. Finally, everyone needs to think long-term. A long-term strategy is in place not to appease the regulator, but to create good governance in a wider ecosystem.