The impact of regulatory bodies on the financial services industry
Following the 2008 financial crisis which impacted the economy significantly, banking regulation has changed a great deal and has had a considerable impact upon the financial services industry.
With banks trying to recover from the crisis, there are issues of uncertainty and instability affecting their efforts. Bodies such as the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) are working together in a bid to try and get the economy back to where it was.
The PRA, which was created by the Financial Services Act of 2012 and is a subsidiary of the Bank of England, regulates a total of 1,700 financial firms, including credit unions, buildings societies and banks in the UK, and aims to offer security for policyholders and the firms themselves. By trying to create a stable financial system, it hopes to eliminate the risks that firms can sometimes pose, focusing mainly on such firms.
In recent times, the PRA has actually worked with the FCA to create a regulatory structure, although the two are totally separate bodies, with the FCA promoting competition and ensuring that markets can work well as well as financial services firms.
The FCA is in control of the prudential regulation of firms which the PRA doesn’t regulate, including independent financial advisers.
With such regulations in place, there will need to be a structural change within the financial services industry, with KPMG stating that this would include “the split of global entities into a patchwork of smaller locally or separately regulated subsidiaries”.
Issues including legal, compliance, capital, funding, tax, liquidity, and governance would all need to be considered as well as operational issues that may arise.
The ways in which banks are working are changing and we have seen a variety of mis-selling occurring over recent years and part of the issue arises from banks wanting to be more customer-focused, which has significantly changed as the regulations have come into play.
This is one of the biggest struggles that banks are facing within this shift.
When it comes to data management, banks are facing challenges including the need to use data in a bid to converse with customers and keep the work more client-focused. With demands having to be met from regulators including the PRA and the FCA, disclosure and reporting rules are becoming an issue.
The actual technology they use has to be of a certain standard so that they can manage all risks effectively, while ensuring that all cybercrime and privacy issues are looked after and don’t cause any risks.
In turn, this is causing issues in which officials need to be more aware of data analytics and be able to understand the responsibilities of data management and what they can and cannot do with it.
However, such governance is of course necessary in the wake of the financial crisis, although there is still a lot that needs to be done further to make sure that financial service authorities and regulators are able to work together to make sure that risks are decreased.