The interplay of forces between banks and increasing regulation is having a significant effect on how compliance strategies are managed. How can firms use this to their advantage?
Banks are changing with increasing momentum. Not long ago banks were being saved by the public after the financial crisis; now they’re paying hefty fines for their involvement in systemic misconduct. The regulatory world for financial institutions is in a state of flux. Change, both culturally and in compliance, has moved to the top of the agenda in the finance world as these efforts are extended in order to reinstate trust in battered brands.
The current climate
In light of massive fines ($19 billion) paid to settle the price fixing scandal on Forex markets and the Libor manipulations, banks do their best to move beyond disputes and legal cases with the regulators, to take responsibility and move on. [i]
Trust and public opinion
An adverse climate was set by the banking crisis against which every new misdemeanour and scandal in the news fuels negative perception and fosters an adversarial climate with government, regulators and a cynical press. The fines imposed are more than just a cost; they are an analogue measure of the destruction of trust.
“Trust in the sector is an economic commodity just as valuable as bank equity,
if less easily weighed.” [ii]
It can also result in serious strategic rethinking, for example reviewing which markets to compete in, which products to sell to customers, or even reviewing moving domicile like HSBC. Is saying goodbye another means to solve the situation?[iii]
Banks are changing
Banks express their attitude towards future progress and try to distance themselves from the past:
- At Royal Bank of Scotland, chief executive Ross McEwan wants to make sure that the misconduct “has no place in the bank that I am building”. [iv]
- Similarly, Anshu Jain, Co-CEO of Deutsche Bank, states that resolving legal issues is a top priority, followed by cultural change to root out the possibility of recurrence. [v]
- At Barclays, massive transformation is under way and disciplinary action is taken against those involved, all part of a compliance programme implementation. [vi]
The centre of gravity for banks’ actions is in the Boardroom. Board’s in the past have often operated a ‘once over lightly approach’ in part to avoid “disempowering” the executive team. Achieving a new balance where empowerment and accountability are operating at the right level is key and where assurance of policy implementation is not just nice to have but absolutely critical. Boards are justly concerned as a flood of upcoming regulations will impact the industry further.
The likely effect is that reactionary and departmental organisational changes, catalysed by ever evolving regulations, creates a disparate approach that can lead to strategic fractures as the portfolio of change is not considered holistically.
Hurdles and barriers of change
This lack of a coherent approach can also lead to poor knowledge exploitation with risk information and lessons learned not being widely shared, and excessive resources deployed in contrast with efficiencies from a joined up approach.
Frighteningly, it may not be until something goes wrong that these cracks really start to show. Paul Sobel, member of the Board and Executive Committee at the UK-based Institute of Internal Auditors (IIA) highlighted, ”…there’s so much noise out there around risk and compliance that it’s difficult to know whether you caught it all.”, which reinforces the need for a strategic, rather than reactionary approach to ensure complete and efficient prioritisation of necessary projects.
When it comes to regulatory and legal compliance, Financial Institutions have certainly come a long way in recent years with a focused and concerted drive to manage their overall approach with dedicated, senior-level teams.
Nevertheless integrating these efforts across the wider organisation, and implementing an overall strategy catering for all departments can seem like an Everest scale challenge. However, as the current regulatory climate highlights, it is a summit that we must scale in order to stay ahead.
Beyond the fragility of a fragmented strategy there is also an increasing consensus that getting ahead with effective compliance management and taking a proactive approach is driving competitive advantage.
This viewpoint changes the current negativity surrounding legal compliance into an opportunity for action and growth. To see these tightening controls as not just a ‘necessary evil’ but as ‘…a way of enhancing and enabling strategy to be discussed and implemented from a position of greater confidence.’
We have used the term ‘Botox Effect’ – to describe two possible end states; will the current regulatory climate cause organisational paralysis and decline or will an optimistic, forward-thinking approach lead to a remarkable make-over that enables you to regain the confidence and trust of all stakeholders and sustain healthy growth?
Where do you stand on the Botox Effect?
Join Skarbek Associates and Guest speaker Peter Kurer (Lawyer, Writer and former General Council and Chairman of UBS) for a breakfast seminar and workshop The Botox Effect. Paralysis or makeover? The challenges and opportunities of adapting to a new legal and regulatory landscape on Tuesday 16th June.
Invitees can register to attend both the seminar and/or workshop.
To register and for more information please click here.
 As Quoted in Ascending the maturity curve. Effective management of enterprise risk and compliance, The Economist Intelligence Unit, 2010
 Ascending the maturity curve. Effective management of enterprise risk and compliance, The Economist Intelligence Unit, 2010
[i] FT ‘Six big banks fined $5.6bn over rigging of forex markets 21.5. p1
[ii] FT ‘Shareholders punished for the sins of the trader’ 22.5 p12
[iii] FT ‘Deutsche Bank fires repatriation warning shot over EU referendum’ 19.5 p1
[iv] FT “Big lenders’ boards set to answer for risk taking” 22.5 p4
[v] FT ‘Investors vent anger at Deutsche Bank’ 22.5 p18
[vi] FT ‘Barclays admits rigging the market’ 21.5 p20
[vii] FT “Big lenders’ boards set to answer for risk taking” 22.5 p4