The financial services industry is highly regulated and constantly evolving. Regulatory changes have a significant impact on the operations, risk management, and compliance obligations of financial institutions. Therefore, it is essential for financial institutions to stay ahead of regulatory changes and anticipate their potential impact. Regulatory change horizon scanning refers to the process of identifying and analyzing upcoming changes in laws, regulations, policies, and guidelines that may impact the financial services industry. This briefing paper provides an overview of regulatory change horizon scanning for financial services.
To conduct regulatory change horizon scanning, financial institutions use a combination of methods, including:
Regulatory news and updates: Financial institutions monitor regulatory news and updates from relevant regulatory bodies, such as the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), and the European Securities and Markets Authority (ESMA). This includes monitoring consultations, proposals, and draft regulations that may impact the financial services industry.
Industry associations and forums: Financial institutions participate in industry associations and forums, such as the British Bankers Association (BBA), the International Swaps and Derivatives Association (ISDA), and the International Capital Market Association (ICMA). These associations and forums provide updates on regulatory developments and facilitate engagement with regulatory bodies.
Engagement with regulatory bodies: Financial institutions engage with regulatory bodies, such as the FCA and PRA, to provide feedback on proposed regulations, seek clarification on regulatory requirements, and raise concerns about potential regulatory impacts.
Risk assessments: Financial institutions conduct risk assessments to identify potential regulatory risks and assess the impact of regulatory changes on their operations, financials, and compliance obligations.
Regulatory intelligence platforms: Financial institutions use regulatory intelligence platforms, such as Thomson Reuters Regulatory Intelligence and LexisNexis Risk Solutions, to automate the monitoring of regulatory changes and to receive alerts on relevant developments.
Impact of Regulatory Changes
Regulatory changes can have a significant impact on financial institutions. The impact may vary depending on the type of institution, the business model, and the nature of the regulatory change. Some of the potential impacts of regulatory changes are:
Changes in compliance obligations: Regulatory changes may result in changes to compliance obligations for financial institutions. This may include changes to reporting requirements, capital requirements, and conduct obligations.
Increased costs: Regulatory changes may result in increased costs for financial institutions. This may include costs associated with compliance, training, and technology upgrades.
Changes in business models: Regulatory changes may require financial institutions to adapt their business models. For example, the implementation of Open Banking regulations may require banks to develop new products and services to compete with FinTech companies.
Increased competition: Regulatory changes may result in increased competition within the financial services industry. For example, the implementation of PSD2 regulations may allow new entrants to the payment services market, increasing competition for traditional payment service providers.
Case Study: Impact of GDPR on Financial Institutions
The General Data Protection Regulation (GDPR) is a regulation by the European Union that aims to strengthen data protection rights for individuals. GDPR came into effect on May 25, 2018, and has had a significant impact on financial institutions.
Compliance obligations: Financial institutions that process personal data are required to comply with GDPR. This includes complying with requirements for data protection impact assessments, appointing data protection officers, and reporting data breaches within 72 hours.
Increased costs: Compliance with GDPR has resulted in increased costs for financial institutions. This includes costs associated with data protection impact assessments, appointing data protection officers, and implementing new data protection policies and procedures.
Changes in business models: GDPR has required financial institutions to adapt their business models to comply with new data protection requirements. For example, banks have had to implement new data protection policies for their online banking systems.
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Contributor: Andrew Baker
20 April 2023 at 21:00:00