The FINANCIAL — More than half (56 percent) of large financial services institutions surveyed, including banks, insurers and capital markets firms, expect to invest at least US$200 million on projects to overhaul how they do business to address global structural reform (GSR) regulations this year, with nearly one third expecting to spend at least US$500 million, according to a new report from Accenture.
GSR regulations were introduced to re-shape financial services institutions and make them more resilient following the financial crisis of 2007-2008. The Accenture 2015 Global Structural Reform Study – based on a survey of 131 banking, insurance and capital markets institutions globally – confirms the large-scale investment to address GSR regulations, given that less than one-quarter of survey respondents said they are compliant with key GSR regulations such as Dodd-Frank Section 165/6 and Basel III.
“Over the past five years, many firms have struggled to keep pace with the multitude of regulatory, conduct and compliance related issues. Their responses have been fragmented and they have made significant investments in people, process and tools to remediate,” said Steve Culp, senior global managing director for Accenture Finance and Risk Services. “Looking ahead, the financial services landscape will continue to be re-written, given the cumulative impact of global structural reform, especially for internationally active banks and insurers. Those with a clear and connected global implementation plan in place will be best positioned to get the most from their investments.”
Nearly all of the respondent companies said they are prepared with regards to becoming compliant with the changing structural regulations, with 60 percent saying they are “well prepared” and another 35 percent saying they are “extremely well prepared.” While nearly all respondents have a change program in place – only one percent said they have no change program in place to address the new regulations – four in 10 (42 percent) said they are running a change program under a global umbrella, and nearly five in 10 (47 percent) said they are addressing regulatory changes on a regional basis.
The report also notes that global structural reform is causing many financial institutions to reshape their structure and product mix in order to comply. Three-quarters (75 percent) of respondents said they expect that most trading activity in the industry will be moved outside of banks to hedge funds and asset management firms, and almost two-thirds said they plan to reduce the current number of products they offer (63 percent) or to offer new products and services (62 percent), and nearly half (48 percent) plan to focus more on core competencies within the next two years.
While the majority (89 percent) of respondents said that GSR will increase the industry’s profitability, they also believe that not all institutions will be able to afford the cost of GSR compliance. In fact, more than two-thirds (71 percent) of respondents forecast that small banks may fall out of the market because they might not be able to afford to keep up with regulatory changes.
“Financial institutions cannot afford to adopt a wait-and-see approach in their response to the challenges presented by GSR,” said Samantha Regan, a managing director in Accenture Finance and Risk Services and lead of the Regulation and Compliance practice. “They need to tackle structural reform with the same bold, strategic thinking that they are using for other industry challenges. First movers can potentially turn this challenge into a competitive advantage with clients and customers drawn to firms with clear business strategies.”
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