Wed, Feb 5, 2014

New Banking Reforms Will Require Careful Regulation

Julian Korek was featured in a recent article with the Financial Reporter discussing the impact of the Banking Reform Bill on the financial services industry in the UK. Julian discusses how what he believes to be the most significant reform of the UK banking sector in a generation will affect individuals, customers and organizations at the firm-wide level.

The two major goals of the bill are to impose greater personal responsibility on key decision makers in banks and also re-build consumer confidence, which Julian breaks down and explores. The bill is designed place new burdens not only on the banks as a firm, but also on CEOs and heads of risk, which Julian believes is integrally tied to consumer confidence.

The findings of Kinetic Partners’ recent Global Regulatory Outlook report seem to show support for this stance. The report, which surveyed 300 senior executives, found that 27% of CEOs and 40% of employees believe that making executives criminally accountable for the activities undertaken by the firm would serve the industry well, as opposed to only 33% who disagree. As a result, financial services firms may find it more difficult to fill these senior roles, since fewer people may be willing to take on this risk. This sense of personal liability, however, is an essential component of the bill, as it is designed to actively encourage firms to create a culture of responsibility within their organizations.

One possible consequence of the Banking Reform Bill, however, could be that the restrictions on investment risk might actually limit choice for consumers, which would obviously be counter-productive. Even more worryingly, there is also a possibility that the operational changes required by the bill may actually reduce the banks’ ability to respond to certain market shocks, since they will limit the crossover between their retail and investment activities.

Regardless, the good news is that we are already starting to see a significant cultural shift in some organizations, as the consumer protection elements of the bill are encouraging firms to adopt a new perspective on risk. As a result, banks are taking steps to secure repeat business by building greater consumer trust, and forward-looking managers are starting to see how these changes can help to support sustainable, long-term growth for the financial services industry as a whole.

To read the full article, please click here.

Financial Services Compliance and Regulation

End-to-end governance, advisory and monitorship solutions to detect, mitigate, drive efficiencies and remediate operational, legal, compliance and regulatory risk.