Strong and Simple - The Impact on Proportionality Rules: Delving Deep at the London RegTech Forum
Ruth Doubleday, Head of Prudential Regulation at BSA
Thomas Ralph, Chief Risk Officer of Charity Bank
Tamiko Bayliss, Head of banking capital policy division at Bank of England
David Hulmes, Head of Sales EMEA at Suade
The iconic Guildhall's Old Library recently hosted our esteemed annual RegTech Forum, organised in partnership with the City of London Corporation. This prestigious gathering convened a select panel of experts from leading banks, building societies, the tech industry, and regulatory authorities. The forum's objective was to illuminate recent transformations in the finance and banking sectors. A focal point of our dialogue was the "Strong and Simple" regime, shedding light on the complexities and challenges faced by smaller financial institutions in today's regulatory environment.
Strong and Simple - The Need for Tailored Regulatory Measures
The financial sector, with its vast array of institutions ranging from global banking giants to local building societies, requires a nuanced approach to regulation. The "one-size-fits-all" approach, while aiming for uniformity, often imposes undue burdens on smaller, non-systemic domestic institutions, making it challenging for them to navigate the intricate maze of regulations. The panel delved into this pressing issue, emphasizing the need for a regulatory framework that is both robust in its oversight and straightforward in its application. This would ideally cater to domestic financial institutions, particularly those with assets of £20bn or lower, ensuring that they can operate within a regulatory environment that recognizes their unique challenges and capacities.
Historical context also played a significant role in the panel's deliberations. The panelists reflected on the regulatory changes that have taken place over the past decade and a half, especially in the wake of the global financial crisis of 2007-09. These changes were primarily aimed at preventing future crises and minimizing their impact on the global economy. However, the panelists noted that the impact of a financial institution's failure varies based on its size, as evidenced by cases like Northern Rock and HBOS.
Challenges for Smaller Institutions
One of the primary challenges identified was the complexity arising from generic regulations. Smaller banks often find themselves relying on consultants who might, at times, advocate for standards that are not necessarily tailored to their scale. This brings forth the pressing need to educate regulators about the essence of proportionality, ensuring that these institutions aren't held to unrealistic standards.
Another significant challenge is striking a balance between regulatory compliance and value creation. While compliance is undeniably crucial, there's a growing realization that a sole focus on returns is insufficient. A deeper understanding of both the business and its data is paramount. Misinterpretations of data can lead to significant challenges. However, smaller institutions often have an advantage in this realm, as their more intimate understanding of data, due to less departmental segregation, can lead to more accurate insights.
Yet, resource constraints often mean that there's a rush to complete tasks, potentially compromising the depth and quality of insights derived from data. This hurried approach can sometimes lead to a superficial understanding of data, which can be detrimental in the long run.
The panelists also touched upon the importance of collaboration and engagement between regulatory bodies and industry stakeholders. They argued for a more nuanced form of engagement, where both parties, despite their differing perspectives and objectives, come together to shape regulations that are both effective and practical.
The panel discussion rounded off with insights on potential system abuses and the critical role of data in regulatory decision-making. The emphasis was on vigilance to ensure that institutions don't exploit regulatory grey areas. The pivotal role of data was underscored, with one panelist noting the centrality of data in shaping informed regulatory decisions.