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Sibos 2013: A Closer Look at the Future of Regulation

Regulation is going to be one of the key themes at Sibos 2013. And this is not surprising, given the tsunami of new regulatory requirements that financial organisations will be inundated with over the next 12-18 months.

A recent report by analysts Celent revealed that financial institutions expect to spend in excess of $50 billion on risk and regulatory initiatives globally by 2015.

As the industry is getting ready to absorb the effects of greater regulation, a larger share of IT spending will be allocated to compliance. But what’s significant is how organisations are coming around to the concept that more effective compliance systems could be a key driver for wider innovation and business transformation, according to the Celent report. And indeed, one of the hottest topics of discussion at Sibos will be what financial organisations need to do now to build the needed IT infrastructure that will enable them to quickly comply with new regulations in the future.

So what are the regulatory trends set to affect the sector’s IT spending over the next year and a half? With technology continually evolving, regulatory frameworks will be adjusting to the emerging needs of the market. Senior executives are being held accountable and therefore re-focussing spend in 2013 and 2014 to deal with regulatory issues  and board members of banks are increasingly focussed on risk and and adherence to regulatory mandates.

Financial institutions will be seeking technology that ensures full transparency across multiple regulatory compliance functions, geographies and lines of business to identify control issues rapidly, while remediating the issues with full end to end control. As a result senior executives are seeking technology that can manage complex and simple risk controls to prove compliance, minimise the impact on revenue and build trust in the market place. 

Specific regulations such as FATCA and country-specific tax evasion rules are becoming better understood even as the date for its full implementation keeps on getting pushed back. These ever-evolving regulations require solutions that minimise the impact on customer experience and are flexible enough to adapt to new rules. FATCA is only one example of how nation states are looking to reform international tax laws for tax reporting as well as new intergovernmental agreements aimed at tackling tax evasion and putting banks in the front-line of identifying these risks.  As countries like the UK, Japan and Germany are considering FATCA-like tax evasion rules, more similar intergovernmental agreements are likely to follow. This means many variations of rules will need to implemented across multiple geographies, lines of business and systems.

Rules like FATCA, new AML rules, Basel III, MiFID, consumer protection rules  and the ever changing regulatory environment s will result in significant changes in how financial organisations onboard, report on and manage customer accounts. Moreover, as organisations are looking to achieve long term compliance, they will need to transform existing IT systems to achieve the needed flexibility to respond to new market opportunities and changing regulatory requirements. Banks will need to implement solutions that can manage a multitude of regulatory requirements on a common platform that is agile enough to manage change while minimizing the impact on the customer.

As the Celent report points out, such business transformation can be achieved through technology improvements in infrastructure enablement, process alignment & optimisation as well as by creating new operating models and revenue streams. However, the key question is how can organisations implement such large scale changes, without having to rip out and replace existing legacy systems and incur intolerable costs?

One of the options lies in using agile technology that sits on top of existing legacy applications and enables organisations to easily build and modify processes from a single technology platform. This will enable financial service providers to control the IT process and easily translate business objectives into actionable IT, compliance and business strategies. By leveraging business process automation and a rules-driven engine that drives compliance by product, line of business and geography, financial institutions will be able to quickly modify rules and processes as new regulations come into force.

This will provide them with unrivalled flexibility and the ability to better align compliance practices to product suitability requirements and business objectives. This will enable significant service improvements and will open up space for innovation, allowing organisations to respond faster to emerging business opportunities and gain a clear competitive edge.


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