The word “data” is used and abused when it comes to Finance and IT – but with new regulations the need for transparency is bringing data strategies to the top of every organisation’s priority list. This series of blogs will examine the new demands, and give examples of how technology can help companies turn regulatory burden into opportunity.
The regulatory mind-set has been shifting from transactional and institutional oversight, to a systemic focus. For example the Dodd-Frank Act states its intention to “improv[e] accountability and transparency in the financial system”. There is still a way to go before the worldwide reforms are fully defined, but understanding and respecting the philosophy and spirit of the law is the best way to design for compliance. Four clear themes have emerged:
Three Types of Transparency
At the heart, transparency is a component to all of those, which is affecting the way banks and their partners think about compliance.
Transparency between firms and regulators: A regulator’s role is to both prevent unethical practices and track the overall system’s health. For this they require access to business critical information, to monitor markets and perform stress tests.
Across markets: A bank’s peers, partners, clients, counterparties…. All demand and expect greater transparency, to keep the markets efficient and fair.
Within firms: From a risk and profitability standpoint, organisations must strive to achieve greater internal transparency. This is key to managing their businesses effectively.
Tough Technology Demands
From a technology standpoint, all three will drive much higher demands on the information infrastructure of each organisation:
The next two posts in this series will go into more detail on this topic.
Adversity into Opportunity
Another big change, from both Dodd-Frank and Basel III, is higher capital requirements. This will have a direct impact on banks’ Return on Assets (ROA). The decline of proprietary trading and complex OTC derivatives will also impact many sell-side firms’ revenue streams.
To combat this means increasing revenue in other areas, reducing costs and improving productivity. Indeed, there may be an opportunity to ‘over comply’ with financial reform to gain important advantages in certain areas. Four examples come to mind:
The worldwide regulatory landscape is constantly evolving, with many implications for the operations and technology of financial institutions, and ultimately for the ability of the Banking and Capital Markets industry to generate higher returns. That said, whilst regulations are a level playing field, how each firm uses technology to turn burden into opportunity may decide who the winners and losers are once the new rules of the game become clearer…
In the second post in this series, read how complying with regulator transparency requirements can make this possible.
This post is the first in a three part series on Transparency: