Sibos Day 2: The future of regulation

By Nicole Miskelly | 13 October 2015

Regulation and compliance is always a big topic at Sibos. Since the 2008 financial crisis regulators have been putting pressure on financial institutions to become more transparent and make more risk-based decisions. On Day 2 at Sibos 2015 the compliance forum opened its doors early in the morning to discuss how financial institutions and regulators are dealing with financial crime challenges and global compliance.

Featuring a panel of regulatory experts including Je-Yoon Shin, President of the Financial Action Task Force on Money Laundering (FATF) and Tai Boon Leong, Executive Director, Banking Department, Banking and Insurance Group at the Money Authority of Singapore (MAS) the session focused on the fact that regulators are asking financial institutions to focus on becoming more risk-based, however, they do not tolerate misconduct and have a zero tolerance approach towards compliance which financial institutions say is hard for them to balance. On the other hand according to Shin, financial insitutions are not giving regulators enough detailed data on risk.

Regulators and financial insitutions always seem to be at loggerheads for one reason or another, however, the panellists did say that today there is better collaboration between regulators and law enforcement bodies etc and although banks have put forward compliance programmes, appointed senior management to lead these initiatives and are talking about compliance, there are still many grey areas.

Leong said that MAS know that they must be sensitive to the impact of regulation and do not expect a one size fits all approach for financial insitutions, although in the ‘Big banks and small banks’ session which followed straight after the compliance opening, the panellist of banks including Ferry Robbani, Head of International Banking and Financial Institutions Group, Bank Mandiri said that in some jurisdictions, such as Malaysia, there is a major disconnect between what the regulators and government want banks to do.

According to a session questionnaire, 68 per cent of delegates have had business turned away from correspondents due to de-risking and 67 per cent have faced a reduction in service from correspondents such as fewer products being offered. Robbani said that he has been surprised at the number of banking correspondents that have been retracting services over the last few years and this has been affecting the whole business. Services such as cheque clearing and accepting payments from walk-in customers have also been affected by these changes.

Andrew Yiangou, Managing Director, Global Transaction Banking Solutions at Australia National Bank has strong views on the subject and says the banking industry has got itself in a mess. Yiangou believes that due to bigger banks being fined, they are pushing out smaller banks, however he thinks there is a place for smaller banks in the banking ecosystem. “Big banks keep getting fined and the response is to kick out the smaller banks,” he says.

Both regulators and financial institutions do agree that more discussions need to be held around compliance and Jack Jared, Managing Director, Business Compliance and Risk Head at Citi says that “until there is proper discussion on what a risk-based approach etc is, it will not bring us to a proper conclusion.”

Shin said that the FATF have a focus on terror at the moment and want transparency and consistency from banks but are currently working on making guidance for the correspondent banking sector.

Financial crime compliance is a topic which continues to come up in discussions and from attending sessions at Sibos it is evident that competitors are collaborating on compliance because they realise that these regulatory requirements will not go away.

“The regulatory environment is evolving rapidly and it is a challenge for the banking industry to keep up. Over the past five years we have been trying to figure out how we can turn how fast regulation is changing to our competitive advantage. We have had a lot of conversations with SWIFT around KYC and AML and being able to collaborate and identify a layer that can really help you stay ahead,” says Bill Pappas, CIO of global wholesale banking technology and operations, BofAML.

Regulatory requirements and laws can change overnight, as shown in the recent rulings over EU data flow laws which have put a stop to EU data being transported across the Atlantic after 15 years of this activity. This decision has angered the US technology industry and highlights just how quickly laws can change.

According to Bill Pappas, there are two keys ways to adapt to regulatory requirements. “The trick with the regulators is a) making sure that you stay ahead because regulation is changing so quickly and you need to be able to react to that, and b) not to look at changing regulation as an inhibitor.”

With many market infrastructures considering running ISO 20022, during his session at Sibos, Amit Sharma, MD, Head of eCommerce and Channels, Asia Pacific Global Transaction Services, BofAML gave a 360 degree view on the top 5 benefits of this new standard. According to Sharma, ISO 20022 isn’t just a standard, he says that industry attitudes should change towards it, and rather than viewing it as typical standard that can be used for payment processes, organisations should be implementing it and figuring out the standard later because it provides revenue, reduces costs and encourages agility, it can also be used for direct debits and bank statements. Sharma believes that there has been a slow adoption rate towards ISO 20022 because it is being positioned as a standard rather than highlighting the benefits. Corporations are often confused about ISO 20022 and whether it is a mandatory standard, however, it is standard that SWIFT and banks believe should be adopted and SWIFT facilitates.

At Innotribe’s ‘Re-inventing regulation’ session, the speakers contemplated the idea of being able to re-imagine regulation for today and the future. According to Dan Kimerling, Co-Director, API Banking at Silicon Valley Bank there are currently 4 major trends in payments including Variety, Velocity and Volume, trends which have previously been used to describe big data.  Lukas May, former FCA regulator and current Head of International Growth and Regulation at Transferwise said that because regulators in Singapore, Korea and Australia now have fintech hubs, regulators may even be the ones to re-invent regulation. May also believes that by applying the same re-invention to anti-money laundering (AML) rules, it could end the “double jeopardy” of banks supervising regulated firms and if regulators allowed banks to use social media to confirm identities then it could help to fight the battle of financial crime.

According to Sean Park, Founder and CIO of Anthemis Group, the industry should be re-accessing what regulation is and why we have financial regulation in the first place. Park believes that there should be more of a focus on provider and consumer responsibility and that the industry should be taking a start-up approach to failing fast and cheaply. Park belives that unless regulators make changes to the current procedures then the industry will not survive. “If changes aren’t made the financial system is likely to fall over in our life time,” said Park.

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