Regulation now the key issue
The private banking and wealth management industry is now
at the forefront of regulatory driven business and operating model
change.
Go deeper with GlobalData
The unprecedented regulatory change
underway across financial services globally has common themes for
private banks and wealth managers. New regulations affect capital
requirements, tax outcomes, the customer experience, and are now
influencing business strategy and operations at every level.
PwC’s 2011 Global Private
Banking and Wealth Management Survey found regulation is
having profound impacts as a key driver of change. The
not-so-invisible hand of regulation is increasingly trimming
profitability. A third of our respondents indicating that
regulation would have a significant impact on their operating
costs.
Preparing for regulatory change is
no longer a simple matter of technical compliance but involves
significant changes to business models, technology, processes,
people and operations.
The wide-ranging, complex and
inter-dependent impacts of new regulation, and the immediacy
resulting from increasing regulatory involvement and greater
enforcement powers, have created a series of high-level executive
issues including:
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By GlobalData- navigating an increasingly
complex global web of regulatory change – where the devil is truly
in the detail; - grasping how detailed
regulatory reporting requirements will affect systems, data, risk
analytics, and management information.
Cross-border
challenges
Cross-border compliance continues
to be an important issue for international institutions. In the US,
the Foreign Account Tax Compliance Act (FATCA) requires disclosure
of cross-border client ownership of US securities and has a
significant impact on all non-US financial institutions.
Critically, while the legislation that established FATCA stated its
objective and sanctions in clear terms of with-holding penalties,
the detailed rules are still being created.
Regulatory overlap is a real
challenge. The Swiss Financial Market Supervisory Authority
published a paper outlining their expectation that banks analyse
legal and reputational risks and take measures to minimise and
eliminate risks in cross-border banking activities.
Offshore activities in many
countries will have to be normalised across markets. Greater
compliance with foreign rules concerning market access, legal and
jurisdictional challenges have resulted in development of
country-specific manuals, training and education to aid
relationship managers in determining what they can, and cannot, do
in the markets they serve.
Consumer
protection
Regulators across the globe are
also giving greater protection to consumers. Whether in the EU,
Singapore, UK or US, regulations are establishing new rules in
areas such as sales product suitability, disclosure and adviser
competency standards.
Some regulators are becoming much
more proactive when assessing firms’ client conduct. They are
focusing on product governance, scrutinising the whole product
lifecycle from start to finish, rather than just focusing on
clients and distribution and activity at points-of-sale.
Regulators will increasingly demand
that wealth managers develop products that are suitable for
specific clients and not broad markets.
They will require products sold to
clients to behave as expected over time. Wealth managers must
introduce response frame-works and documentation in product
approval, market conduct and adviser competency. The industry will
need stronger risk management infrastructures, particularly in the
front-office and around client interaction.
Private banks and wealth managers
face more regulatory requirements than ever before. Our 2011 survey
reports the industry view that increased regulatory demands are a
key barrier to effective change management in their businesses.
However, regulatory scrutiny will
only increase and institutions need to successfully implement the
necessary requirements navigating the uncertainties which
exist.
Firms who get it right will build
credibility with regulators and impress clients with higher levels
of professionalism. They will also take market share in the future
from those institutions which fail to keep up.
Jeremy Jensen is EMEA private banking and wealth management
leader at PwC
