The Future of Regulatory Reporting Post–SVB

Interview with Fiona Humphries, former Senior Managing Director at Silicon Valley Bank: Strengthening the Relationship between Banks and Regulators for Effective Risk Management

Interviewer: Tom Fairey, Suade Labs CRO

Interviewee: Fiona Humphries, former Managing Director at Silicon Valley Bank

Introduction:

In this interview, we explore the evolving dynamics between banks and regulators in the context of risk management. Fiona Humphries, a seasoned financial services professional with extensive experience in risk management and compliance, shares her insights and expertise on the subject. We delve into the impact of recent crises, the need for improved collaboration, the role of technology, and the path to enhancing risk management practices. Let's begin our discussion.

Interviewer: As a respected industry expert, we are eager to hear your thoughts on the relationship between banks and regulators. How have recent crises, such as the collapse of SVB and Credit Suisse, impacted this dynamic?

Fiona Humphries: The relationship between banks and regulators is in a constant state of evolution. Following the 2008 financial crisis, regulators responded with stricter regulations to ensure the stability of the financial system. Recent crises, including the collapses of SVB and Credit Suisse, have shed light on the need for a deeper partnership between banks and regulators. Regulators are under pressure to take action, and the industry is still grappling with the aftermath of these collapses. However, it is too early to fully assess the impact on the relationship.

Interviewer: Collaboration between banks and regulators, particularly with the Federal Reserve, is crucial. In your opinion, how can this collaboration be improved?

Fiona Humphries: To enhance collaboration, banks and regulators, including the Federal Reserve, should focus on real-time data and better standardization. The disparity between the technological capabilities of banks and regulators presents challenges in achieving effective collaboration. Improved interpretation tools and a comprehensive understanding of the qualitative aspects of risk management are essential. Transparency and shared goals between banks and regulators are also crucial for successful collaboration.

Interviewer: Real-time data and better standardization certainly seem promising. Can better controls and reporting functions help prevent crises like the collapse of SVB and Credit Suisse?

Fiona Humphries: The collapses of SVB and Credit Suisse had distinct underlying causes. Credit Suisse faced significant risk management and control issues. However, additional controls and reporting functions may not have entirely prevented the collapse of SVB. While rapid growth, risk management, and controls are vital in crisis prevention, we must also acknowledge the challenges posed by technology, real-time data, and the ever-changing market landscape.

Interviewer: Striking a balance between enforcing regulations and fostering innovation is a delicate task for regulators. How do you suggest regulators navigate this challenge?

Fiona Humphries: Striking the right balance is crucial. Regulators should create an environment that encourages innovation while ensuring effective risk management. Implementing regulatory sandboxes, which allow banks to test new technologies and business models under controlled conditions, can be an effective approach. Additionally, proactive dialogue between regulators and banks is necessary to understand innovative approaches and assess potential risks. Collaboration is key to striking the right balance.

Interviewer: Technology is transforming risk management practices. How can technology strengthen risk management practices and collaboration between banks and regulators?

Fiona Humphries: Technology plays a pivotal role in enhancing risk management practices and collaboration. Advanced analytics, artificial intelligence, and machine learning enable banks and regulators to analyze vast amounts of data, identify emerging risks, and improve decision-making processes. Leveraging technology allows regulators to gain real-time insights into banks' operations, enhancing their oversight. However, it is crucial to ensure robust governance and data privacy measures accompany the use of technology.

Interviewer: Establishing trust and effective communication between banks and regulators is vital for risk management. How can this be achieved?

Fiona Humphries: Trust and communication are foundational elements of a strong relationship between banks and regulators. Banks must prioritize transparency in their operations, risk management practices, and reporting. Regulators, in turn, should provide clear guidance, be responsive to banks' concerns, and foster an open dialogue. Regular meetings, industry forums, and collaborative initiatives facilitate trust-building and enhance communication. Sharing information, best practices, and lessons learned further strengthens the partnership between banks and regulators.

Interviewer: Regulatory reforms can significantly impact risk management practices. Are there any reforms or initiatives you believe would improve risk management practices within the US?

Fiona Humphries: Regulatory reforms should focus on several key areas. Firstly, reporting requirements, especially in liquidity and real-time risk management, should be further enhanced. Secondly, the establishment of global data standards would facilitate consistent and reliable risk reporting across borders. Additionally, regulatory frameworks must adapt to the rapidly evolving technological landscape, effectively addressing risks associated with emerging technologies. Lastly, fostering a culture of accountability and encouraging banks to prioritize risk management alongside profit generation are crucial aspects of regulatory reforms.

Conclusion:

In this insightful interview, Fiona Humphries shared valuable insights on the evolving dynamics between banks and regulators in risk management. The collapse of SVB and Credit Suisse served as reminders of the need for a deeper partnership and improved collaboration. Technology was identified as a key enabler of risk management practices and collaboration, although it should be accompanied by robust governance measures. Establishing trust, enhancing communication, and implementing regulatory reforms were highlighted as essential factors for strengthening the relationship between banks and regulators. By addressing these challenges collectively, banks and regulators can build a more resilient financial system that effectively manages risks and promotes stability.