As the Financial Services industry starts looking beyond the pandemic, we notice that firms are turning back their attention towards key regulatory topics. Brexit readiness, IBOR transition, SFTR, and CSDR preparedness have dominated most regulatory change agendas in 2020 and early 2021; we expect these topics to continue being in focus in the short term.
There are, however, five key emerging trends featuring on the regulators’ agendas that are worth a watch. From restructuring operations to countering money laundering, these topics are making fundamental changes to the way financial firms do business.
1. Implementing Operational Resilience in the era of ‘hybrid’ working models
Recent policy statements released by the FCA and PRA on the subject of Operational Resilience have put changes to important business services in motion by setting the first compliance deadline of March 2022. Increased focus on minimising consumer and market harm, mitigating dependencies on IT vendors and cloud providers, and managing the risk of cyber threats will require most firms to invest significant resources to ensure regulatory adherence. The pandemic experience will also play a significant role in defining operational resilience frameworks as firms try to balance ‘hybrid’ working models and operational controls.
While it may be tempting to push back IBS mapping and scenario testing until closer to the deadline, these requirements can take a considerable amount of time. Evidence of action being taken to address the regulatory demands must be available from the March 2022 deadline, so firms must start getting the gears of their Operational Resilience programmes turning.
2. Highlighting efforts towards Anti-Money Laundering and Anti-Financial Crime
Anti-money laundering will always be a key topic for regulators, and it is unlikely to change in the future. In fact, regulators are now increasing their focus further on protecting the market and consumers from the ever growing threat of financial crime, money laundering, and terrorist financing.
Driven by diverse regulatory agendas, conversations around ‘perpetual’ KYC, intelligent client identity management solutions, advanced anti-financial crime platforms, and comprehensive cyber-security technologies have increased in frequency and are gaining traction. Moving forward, it’s critical to ensure that all new infrastructure complies with the latest AML and KYC efforts.
3. Increasing focus on effectiveness and accuracy of regulatory compliance
Recently, most regulators have been focussing on the effectiveness, accuracy, and sustainability of regulatory compliance across all primary regulatory pillars including risk controls, regulatory reporting, and better governance. Increased attention on this matter has been evident in the numerous regulatory consultations, reviews/amendments (EMIR REFIT, MiFIR, MiFID, CRR etc), and ‘Dear CEO’ letters the industry has witnessed in the past few months.
Firms will need to revisit their ‘tactical’ regulatory change deliveries over the past decade to find better and more efficient ways of continuing to demonstrate compliance. The recent rise of new technology and RegTech firms, and increasing regulatory support is also a testament to this trend.
4. Pursuing Climate Risk, Sustainability and ESG solutions
The timelines and urgency of this topic cannot be stressed enough, and it has become an ethical imperative for every industry to support the global ESG movement in every way possible.
Financial Services are paying attention to this subject with various regulators and industry working groups collaborating, such as the Task Force on Climate-related Financial Disclosures (TCFD), to improve climate-related risk management and disclosures. Multiple regulatory requirements and guidelines are currently in development or in early enforcement stages, i.e. the EU Taxonomy or the Sustainable Finance Disclosure Regulation (SFDR).
The near-term objectives of these groups are to define a standardised taxonomy to classify financial products as ‘sustainable,’ as well as harmonise methodologies to identify and measure sustainability risk. We expect this trend to progress swiftly, with industry participants being required to constantly track all regulatory developments to stay in front of the wave.
5. Centring investor protection
Investor protection has been a critical theme of regulators’ decision making since the 2009 crisis. Its core purpose is to ensure market participants act in the best interests of their clients and end investors, as well as to protect those interests through proper standards of conduct.
This trend has been evolving since the crisis and this can be seen most clearly in the various securities regulations implemented across the globe, in Dodd-Frank, MiFID and MiFID II, AiFMD and PRIIPs, and Prospectus Regulation, to name a few. Different regulations may cover different segments of market activity, but the central themes are the same and include fair and transparent treatment of investors, putting investors interests at the centre of your business, aligning the needs and objectives of investors with appropriate products whose risks are adequately disclosed, ensuring that investors can understand these products and their risks, and ensuring communication and offerings are clear and not misleading.
The need to strengthen investor protection is as important now as at any point in the past, and regulators, fearful of the broader access offered through online services, the rapid rise in cybercrime and rapidly evolving market structures in areas such as cryptocurrency, are placing renewed emphasis on the topic. Regulated firms can expect continued scrutiny and tighter rules, and will be wanting to ensure they can operate to best-practice standards in their oversight and governance of business to avoid repeats of past mistakes.
Each of these five changes are different, but present unique additional regulatory pressures and changes to the very core of the Financial Services Industry and its participants. It is now time to adopt the spirit of adaptability, to be open to reinvention, and focus on not ensuring compliance, but harnessing the potential each of these trends can create.
At Delta Capita, we pride ourselves on being at the forefront of change and innovation in the financial services industry. Through combining c-suite expertise and cutting-edge technology, we assist firms across the globe in meeting ever-changing regulatory standards quickly and efficiently.
If you are interested in finding out more about any of these trends and how Delta Capita can help you capitalise on the opportunities they present, download our regulation timeline today or contact us here and speak to one of our experts.