A new world order: how regulations have transformed banking tech strategy

By Kostas Kotsiopoulos | 10 July 2018

Regulatory changes and technological innovations lead banks to transform their business models to better manage risk, enhance client service and thus remain competitive, flexible and agile. In particular, the financial services organisations need to deploy a framework to support Basel III (for capital requirements and liquidity risk), Mifid II (for investment management), PSD2 (for payments), Open Banking and GDPR, with these already in force. Inevitably, the aforementioned regulations affect the way banks are operating, which mainly impacts their relationship with customers, as they are greatly supporting transparency, ease and fast service.

However, such regulatory changes can also be seen as an opportunity to do business more efficiently and enhance one’s competitive advantage. The element that can accelerate compliance and organisational efficiency lies within digitalisation with new technologies deployed to address complex concerns.

According to Deloitte’s report Financial Markets Regulatory Outlook 2018 the primary challenge for financial institutions and banks, in order to create a risk-free and compliant infrastructure accommodating local and international regulatory requirements, is to “adopt new approaches and invest in tools and strategies that can help them efficiently navigate the new complexity”. By investing in technological innovations banks can achieve performance efficiency and regulatory compliance across their operations and leverage opportunities for market growth through new products and services deliverance. This can help banks gain a significant value by streamlining their processes.

In addition, as mentioned in the report, the significant importance of stress testing scenarios and analytical reporting along with the introduction of the IFRS 9 standards highlights the necessity for banks to develop new risk management capabilities and methodologies to successfully meet regulatory demands. Thus, banks should reshape their business and IT structure via modern technologies and leverage industry best practices to achieve business agility, drive model efficiencies and remain ahead of the evolving trends and expectations. As a result, banks will be able to apply effective and holistic stress testing analysis, produce the required reports and perform regulatory capital calculations under IRB approaches as defined by each regulator.

Therefore, the evolving environment represents a pivotal opportunity for banks, provided that they will review and re-assess their strategies and move ahead from the traditional banking models and legacy systems towards digital transformation. Banks that recognise the importance to renovate using robust risk management techniques in their operations are the ones that will manage to comply more efficiently and effectively, so as to achieve increased profitability and competiveness in this rapidly changing marketplace.

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