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Financial Institutions implementing change to operate under new Global Regulations, says Capco report

Executives surveyed work in the areas of trading, risk, regulation and operations at global financial institutions with revenues of more than US$5bn

Financial institutions are moving ahead with changes to their capital markets business and operations, even amidst uncertainty on final rules governing regulatory reform, according to a report commissioned by Capco and written by the Economist Intelligence Unit. The findings found a broad variance in the preparations made for regulatory reform from the different business functions surveyed. Out of the four functions surveyed, nearly three-quarters (73%) of trading executives reported that they are already at the implementation stage. This contrasts with the regulatory function, with only 20% stating that they are at the implementation stage, although 60% have completed an impact assessment. The operations function leads in “identifying the regulatory changes that impact the business,” with 46% stating that they have done so.

The report, “Change amidst uncertainty: how banks are adapting to the emerging regulatory landscape,” includes a survey of 60 senior executives split between US- and UK-based financial institutions in the areas of trading, risk, regulation, and operations. As a result, the report provides a detailed look at where institutions stand today in terms of preparing for new regulations, the impact of these changes on operations and the potential gaps in their approach.

Key findings from the report also include the following:

Many financial institutions see potential for opportunity as a result of regulatory change: 32% of UK respondents strongly agree that the new regulatory framework provides an opportunity to gain market share. US institutions are less optimistic with 20% feeling strongly that change presents an opportunity for a competitive edge. Within the financial institutions, traders were the most optimistic with 82% agreeing with the potential to gain market share.

Firms need more information counterparties due to reform: Financial institutions identified transactional data as the area where they need more detailed information with 54% identifying this area, followed closely by collateral at 53%.

Most financial institutions have a strategy for new data requirements: Nearly three-quarters of institutions have a strategy in place in order to identify where changes to data need to be made, or have already identified the systems which will need modification. Three of the four business functions surveyed are well advanced in terms of preparation, led by operations, with again the regulatory function lagging.

Financial institutions undecided about whether new regulations would require relocation or outsourcing of any business functions, or the need for a shared utility: In 13 of the 17 areas of operation, the majority of respondents said they did not know what the impact of regulation would be on organizational structure.

Many financial institutions do not have an overarching view of the impact global regulations will have on the enterprise: The report highlights concern among many industry participants who believe change at institutions is happening in a fragmented and siloed manner.

Stephen O’Sullivan, Capco partner, said, “We are very pleased to provide this report to our clients as well as other market participants as it provides considerable insight into what firms are focused on at this pivotal juncture. Institutions in both the U.S. and the U.K. are expecting clarifications from regulators, but even with the ambiguity over the final rules, firms are wisely moving ahead to prepare.”

O’Sullivan continued, “However, the report does reveal that implementation is happening piecemeal through task forces working at a national level, and therefore not at the necessary global, enterprise-wide level. This report demonstrates that firms need to be thinking critically about enterprise-wide solutions connected to strategy, customer and counterparty disruptions, structure and technology as a response to regulatory change is formed.”