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Transformative regulation finds its feet in 2020

Transformative regulation finds its feet in 2020

The true benefits and complexities of transformative regulation across financial services is set to become reality in 2020, as firms work to prepare and implement systems to meet compliance standards while maintaining a competitive edge.

In The Future of Regulation: 2020 Predictions, published by Finextra Research, it’s clear that despite significant investment and preparation, many firms are struggling to be meet looming deadlines.

The risk of hefty penalties and reputational damage are providing considerable motivation to prepare, but in some instances the grey areas of new of regulatory demands remain difficult to interpret, let alone to meet effectively.

First, the report explores the LIBOR departure and how institutions are looking to digital solutions to facilitate and streamline their departure from the rate and ensure their operations have a secure, robust alternative to the entrenched rate.

McKinsey estimates that 50% to 75% of banks’ models involve LIBOR and will need to be redeveloped, and almost all their systems will require some type of remediation.

The report also addresses the introduction of PSD2’s strong customer authentication (SCA) and the challenge it presents, not just to firms but the customers they service.

As the market demand for Open Banking in the US has exploded, emerging regions such as Latin America and the Middle East are showing the ease and speed at which the initiaitve can be deployed when unencumbered by legacy systems.

The ongoing battle against money laundering persists in 2020, as both established and disruptive firms -such as crypto exchanges- calibrate their operations to meet the 5th and 6th Anti Money Laundering Directives.

Michael Harris, director of financial crime compliance at LexisNexis Risk solutions, says: “It’s a real-life game of financial cat and mouse and in my opinion, most businesses, including some of Europe’s biggest financial institutions, are currently at best just about coping with detecting and fighting financial crime.”

Throughout 2020 financial institutions will ride the wave of interest in sustainability within the financial sector, while keeping their ears glued to the ground in order to act quickly on anticipated changes to ESG reporting standards.

Alex Liftman, global environmental executive, Bank of America, says: “Significantly accelerating progress on addressing big global issues like climate change requires going beyond business-as-usual financing to find innovative approaches that can help attract a larger share of capital from a broader set of investors. These efforts are driving economic value and producing innovative solutions.”

During 2018, we’ll also observe the maturation of GDPR as it prompts an increase in fines for non-compliance by regulators who are transitioning to the role of enforcer. It’s clear that uncertainty remains in the data regulation space and the UK’s departure from the EU will likely reinforce scepticism held over the interaction between firms in the industry which operate under complex legislative frameworks.

On the adoption of Basel III as a means to strengthen bank capital requirements, the EBA reaffirmed its support for a full implementation of the final Basel III standards in the EU in its report to the European Commission states: “The macroeconomic impact assessment shows that the implementation of Basel III will have net benefits for the economy of the European Union.”

The report provides an update on the status of each of these areas - IBOR, SCA under the PSD2, GDPR, 5MLD, 6MLD, Basel III, and ESG, to illustrate the challenges and impact these epicentres of regulatory attention impose on the fintech and financial services sectors.

Click here to download ‘The Future of Regulation: 2020 Predictions.’

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