Regulatory alchemy

How the financial sector is transforming increased scrutiny into operational efficiencies

Miriam Gillinson
21 June 2017

3 min read

Since the financial crisis of 2008, financial regulation has been expanding around the world. Far from putting a brake on innovation and a cap on profitability, however, the challenge of complying with complex regulations is inspiring improved efficiencies and an upgraded investor experience.

Financial executives tend to complain about new regulations, which complicate their companies’ operations and raise costs. The flood of new regulations that followed the 2008 financial crisis, however, is prompting a very different response: global financial institutions are abandoning their manual data reconciliation processes for new computer technologies that streamline their operations.

The result is a bounty of benefits: improved and simplified compliance plus reduced costs and better customer products and services.

“Most major financial institutions have a significant global presence,” said Jonathan Moulds, president, Europe, Middle East and Africa, for Bank of America Merrill Lynch. “They are, therefore, affected by regulations in all their main countries of operation. This is a challenge to any major financial institution and results in complexity, cost and occasional contradiction.”

Failure to comply also brings both financial and reputation costs. Regulatory fines and settlements increased by a factor of 45 at the top 20 US and EU universal banks between 2010 and 2014, according to global management consulting firm McKinsey & Company.

“Regulation means that banks and asset managers must now focus on technology solutions wherever possible, given the huge volume of data that is needed to ensure compliance with all the changing regulations,” Moulds said.


Almost all of the new regulations are designed to promote “transparency” or “harmonization.”

“Banks, capital markets and other institutions are tasked with collecting, calculating and submitting hundreds of thousands, and possibly millions, of data points a month to regulators,” Big Four audit firm KPMG observed in its 2016 report, “Data Insights: Regulation’s Silver Lining.” “Increasingly, regulators are demanding evidence of the source, or ‘traceability,’ of the data to verify its credibility.”

Properly analyzed, however, this data can generate major business benefits. KPMG cites improvements in understanding customer behavior; identifying market trends earlier; and comparing the performance of business units, teams and individuals.

 “Everyday decisions on trading, investment, risk management and loans can be transformed by the availability of powerful information.”


“All financial services companies should benefit from faster analysis and more efficient modeling, which improve targeting and pricing, credit and liquidity models and capital planning,” KPMG observed. “Everyday decisions on trading, investment, risk management and loans can be transformed by the availability of powerful information that is more current, more complete and more accurate.”

At Swedbank, Angelique Angervall is program manager for MiFID II, the European Commission’s latest framework for regulating the operation of financial markets to increase investor protection and market competition.

“Regulations such as the product target market require that banks harmonize their product development process across all business areas and geographies, and this should be positive for the bank,” Angervall said. “It’s probably more cost efficient and better from a compliance perspective, and it will save us some time because we know the same processes are being followed. This should be good for the bank from a return on equity perspective.”


By pushing for improved transparency regulators are, in fact, catalyzing a more customer-centric approach.

“Understanding the customer better will hopefully lead to more client-centric products, or more products which better suit real client needs,” said Daniel Veit, in charge of MiFID II Product Management at Deutsche Bank.

Swedbank’s Angervall agrees.

“The requirement to enhance the quality of services is a catalyzer because it actually promotes faster development of services that we have wanted to provide for many years but haven’t prioritized,” she said. ‘‘In the future, clients will have the cost transparency sheet in their hand. We will have to make sure there is some added value in our products.”


The speed at which technology is being adopted, however, varies greatly, notes London-based Kemp Little, a leading technology law firm.

“While some existing businesses and new challengers are already well along the path to executing business plans that capitalize on technological advances and current and incoming regulatory changes, others are grappling with how best to position themselves and allocate resources in the most efficient way,” the firm observed in a recent report.

Ultimately, technology will help decide which companies emerge with enhanced reputations and improved market share. “Compliance systems are an essential part of protecting an individual financial institution, as well as protecting the financial system as a whole,” Moulds said.

And now it seems, compliance is an essential part of encouraging automation that also makes financial institutions more efficient. ◆

Watch Dassault Systèmes' VP of Financial & Business Services share insights on digitalization’s impact on the industry:

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