‘The New Normal’ – living with continuous regulatory change in the financial markets

TheNewNormal_SoMe1It is now firmly accepted that regulation has become a natural part of the business environment in which many financial institutions operate. Dealing with a constant stream of regulation has become ‘The New Normal,’ but banks are still failing to capitalize on the opportunities that regulation provides to drive strategic investment and business change.

With the volume of regulation increasing, GFT conducted a global research project to establish the attitude of the global investment banking community to this environment of constant regulatory change. The research surveyed 66 organizations, including global and domestic investment banks and CCPs across North America, the UK, mainland Europe and Asia.

The survey found that 95% of firms agree that they are now operating in ‘The New Normal’ environment, where the pace of regulatory change is both unprecedented, and unlikely to slow in the future. Respondents pointed to the beginning of 2013 as the ‘tipping point’ for when this change occurred, which coincides with the enactment of the Dodd-Frank and EMIR regulations.

The silver lining seems to the data and analytics that are coming out of these new regulatory requirements; 85% of survey respondents stated that they believe they have been able to make better business decisions following the 2008 financial crisis. However, the response to regulation is still viewed very much as an exercise in compliance for many firms.

Tactical work-arounds to meet regulatory requirements

Most agree that since the crisis, regulatory change has increased their focus on compliance, rather than business innovation. Most respondents admit that their organizations pursue tactical work-arounds to meet regulatory requirements, indicating that they are approaching regulation from a tactical rather than a strategic standpoint.

Financial institutions may have accepted the new regulatory environment, but they are failing to adequately tackle the challenges of regulation or take advantage of the strategic opportunities offered.

The over-reliance on tactical work-arounds may ‘tick the boxes’ for compliance but they inevitably lead to a legacy of ‘technical debt’ which will require further remediation at a later date. This is something firms acknowledge and accept, but 40% of respondents do not believe further remediation will be required once they have achieved compliance.

Firms recognize the importance of measuring the impact of regulatory change, but only 48% are acting upon their findings to help improve their businesses. It is however, encouraging to note that the communication of regulatory information is almost universal within our respondents firms, but too many are communicating this information from multiple, non-uniformed sources, creating confusion and duplication of effort. We believe that a single, uniformed source of regulatory information within firms is the most effective way to communicate, but this is something only 20% of respondents claim to be doing.


‘The New Normal’ regulatory environment has been in existence for over two years, but it is only now that firms are beginning to ask the critical question on how they can operate more efficiently in this new environment. The volume, scale and complexity of regulatory change means that firms need to start thinking about regulation differently; it is here to stay and can no longer be viewed as a temporary phenomenon.

Financial institutions are operating in a tougher environment; returns on equity and capital are lower than before the 2008 financial crisis. In this new paradigm, banks need to re-evaluate their business models and governance structures, if they are going to be successful and maximize revenues. Tactical solutions, though sufficient to meet immediate compliance needs, often result in poor data management and will need to be replaced by a strategic processes in the future to allow firms to scale and keep operational costs low.

Those banks that will be successful in the future will be the ones that view regulation as a strategic opportunity and not simply as an exercise in compliance. Regulation should be viewed in a wider overall context. Banks must begin identifying how regulation impacts different businesses units in different ways, rather than looking at each regulation on its own individual merits. Key decisions need to be made now, which may include reviewing business models and client relationships, and adopting a much more strategic review on what regulation means to each organisation and the industry as a whole.

‘The New Normal’ regulatory environment is one where banks need to show they are well-governed, safe institutions that are being managed in the correct way. Having the right data will demonstrate this, allowing them to make the appropriate strategic business decisions and to answer the regulatory questions being asked of them. This will allow banks to confidently deal with new, complex and competing regulatory demands that are very likely to be placed on them in the future.

Download the infographic here: GFT New Normal: research findings at a glance
Get the full survey results here: GFT New Normal: research findings in full length
Learn more about The New Normal here: GFT New Normal: All about Regulatory change

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