• Phone
  • Contact us
  • Locations
  • Search
  • Menu


  • Add this article to your LinkedIn page
  • Add this article to your Twitter feed
  • Email this article
View or print a PDF of this page

"The implications are clear: firms need to act quickly to review at-risk portfolios and governance processes - the jaws of the FCA are ready to take their first bite."

Steve Folkard, 

PA financial services Expert

Regulatory change: it’s time to build muscle, not fat 

Close this video

Lessons learned from the financial crisis, together with fundamental changes in banking regulation, such as Basel III, have made banks reassess their approach towards regulatory compliance.  For many, this means embarking on a journey of root-and-branch transformation, with the majority of the change budget going towards compliance initiatives.  

While it may well be necessary to focus some investment in this area, questions remain about the extent to which the added spend delivers better outcomes for banks and their customers. At its worst, the business ends up engaging in an elaborate and costly box-ticking exercise while missing what the regulation is ultimately trying to prevent. And even when high-cost initiatives are successful, banks need to ask whether they could have received the same results more effectively – and for less cost – by taking a different approach. 

The most successful organisations look beyond the letter of regulatory rules: they focus on the desired outcome of regulation by informing, aligning and enabling their business and operating strategies. By building muscle, not fat, they achieve compliance while creating real competitive advantage.

Balancing investment with return 

With so much existing regulation, and so much upcoming it is all too easy for banks to get lost in endless technical detail.  Furthermore, banks frequently approach regulation with the attitude that every single requirement must be met, regardless of its benefit or appropriateness.  

A top-down and proportionate approach needs to be applied. This should be focussed on the highest areas of risk, akin to the new regulatory approaches being adopted by the PRA and FCA in the UK.  In practice, this means designing a regulatory change portfolio where the investment is linked to the importance of the outcome the regulatory requirements are seeking to achieve.  In some instances this will mean pushing back on the regulator and explaining why you believe investing in meeting certain requirements will not benefit you or them.  We estimate this change in risk tolerance could free up to 25% of regulatory change budgets and provide necessary focus to the most critical areas. 

Looking ahead

The dominance of regulatory requirements is now reaching a stage where, if managed well, real competitive advantage can be gained; be it through lower capital requirements, more cost effective ways of being compliant, or opening access to new markets.  To take competitive advantage from regulatory changes, banks must think beyond compliance and take a forward looking view of their business and operating strategy and align commercial, regulatory and operational priorities.  In practice, this means developing an effective regulatory horizon scanning capability and thinking now about the likely implications of, for example, a Financial Transaction Tax and Basel III.   

Taking a forward looking and consolidated view of regulation also creates synergies to be realised across the change portfolio (eg aligning Basel III and CRD IV, MiFID II with RDR II).  Waiting for regulation to be finalised and then responding in a piecemeal fashion, typically results in a costly tick boxing exercise with less opportunity for competitive advantage.

Building a centre of excellence for regulatory change

Regulatory change impacts almost every part of a bank.  To be effective, you need to coordinate and align the different functional areas involved.  This includes co-ordinating the effort across risk, compliance and audit, as a business-enabling function. 

One way to achieve this is to set up a small but world-class centre of excellence for regulatory change.  This team needs brilliant people from risk, compliance and audit, together with: pragmatic lawyers who can interpret regulatory requirements intelligently; front-line business people who understand how the business operates; operations and change professionals who understand the operational impact of changes and how to make them effectively; and those with first-hand experience at the regulator and who understand the new regulatory approach.  

Having the right cross-functional team ensures all investment in regulatory change is proportionate and forward-looking. It ensures you are building muscle, not fat.

To find out more, or to join our heads of compliance and regulatory change roundtable with peers from banks and the regulator, contact us now.

By using this website, you accept the use of cookies. For more information on how to manage cookies, please read our privacy policy.