Strategy of regulation or regulatory strategy

For many years now, new regulation comes out as a top concern in financial industry surveys. Implementing the vast amount of new regulation proves to be very challenging for all stakeholders, even regulators themselves, in terms of scoping, budgeting and timing. Moreover, the new regulation is truly transforming the context to do business in at various levels and should be top of mind in strategic thinking, business model design, management and day-to-day client servicing and processing. Implementing new regulation is not just about becoming compliant anymore, it is all about anticipating and understanding the transformation the regulation is leading to in order to make the change happen in a value adding and winning way. Regulation are setting the rules of the game and how can you be good at playing the game if you do not understand the rules? Implementing the changes effectively and efficiently will create competitive advantage in the new banking business context. Having the right governance and organization in place to incorporate new regulation will as such become a major competitive advantage in itself.

So, one should expect that in this transformational context financial institutions have organized themselves in order to cope with this externally imposed transformation but surprisingly only few seem to have incorporated the constant regulatory changes appropriately in their governance and processes enabling them to truly adapt themselves to the new financial world to do business in. Some banks even still seem to be in denial mode from many perspectives, opposing against what they consider to be ‘overregulation’ and considering the new regulation to be something ‘external’ put on top of them rather than something that is changing them from inside out. Banks are often dealing with the new regulation in simple project mode, applying merely classical project portfolio management governance and methodologies in a bottom-up, article by article way without top-down strategic direction. Existing process and IT systems are adapted in a fragmented way where required without looking at the broader picture. As a result, many banks seem to be running constantly after the facts, lagging in implementation, spending big money inefficiently in a cost-reduction context, flirting with non-compliance and -what’s worse- not realizing the transformational nature of what is ongoing until losing business.

This article aims sharing our insights in the regulatory process with you and as such creating ‘regulatory awareness’, calling subsequently for having a governance and strategy in place –a regulatory strategy- to cope with the new regulatory environment and equally to incorporate the regulation in their strategic thinking, having a strategy of regulation. To this end, the first section will briefly describe the main elements of the regulatory process. Understanding the regulatory process will allow you to better assess its impact and design the governance process to deal with it in your organization. In the second section of the article we will provide some guidance and best practices on how to organize the regulatory process in your organization. There is no one-size-fits all for this and each organization has to look at its specific context, taking into account the size and nature of business, to put in place its optimal organization and process.

Read the full white paper (pdf) « Strategy of regulation or regulation strategy » by our Senior Consultant Frank Van Hoornweder.

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