Research & Thoughts

Change Amidst Uncertainty: How Banks are Adapting to the Emerging Regulatory Landscape

Written by the Economist Intelligence Unit

Capco is pleased to present this report, which explores how capital markets firms are dealing with the dramatic changes that are underway in the financial services industry. Based on research conducted by the Economist Intelligence Unit in March 2011, the report provides insight into seven critical questions regarding banks’ readiness for regulatory reform, which were the subject of a recent Capco white paper.*

Among the many insights the survey provides, two are especially noteworthy, and potentially reasons for caution.

First, it is clear that the traders are driving change. Trading operations are taking the lead in implementing business models and processes to operate in the newly regulated environment. In some cases, they are quickly executing on geographic strategies, in jurisdictions where regulations may be more favorable. In doing so, trading operations appear to be outpacing their backoffice and compliance functions by a wide margin. In fact, more than half of the trading operations surveyed could be conducting business in an environment without the necessary obligations support – capabilities that simply may not exist in the local back office yet, or that regulators may not have even fully defined.

The second, related observation is that some bank leaders may not fully understand the exposure created by inadequate governance of trading operations within the new environment. Laws in the United States and the UK now impose stronger fiduciary and oversight requirements on a firm’s board members and executives, requirements that extend to maintaining robust compliance around all trading operations and banking.

Whether or not their front-office moves are part of broader corporate strategy, firms can become exposed to significant fiduciary and reputation risks by executing new business strategies without adequate controls, communications strategies and change management in place. On the up-side, reorganizing quickly and purposefully, and creating compliance programs that meet the test of global regulators, can position banks to increase market share and margin, both in existing and emerging markets.

We hope the findings of this report help you chart a course to new opportunities, leveraging solid governance. Please contact us if you would like to discuss the results or have any questions.