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What systematic risk are regulators now observing?

What systematic risk are regulators now observing?

Regulators have faced heightened risk to the stability of the financial market and a loss of confidence in the banking system in the first half of 2023 after the collapse of multiple Financial institutions. While regulators globally are increasing efforts to assess financial stability via the liquidity and capital adequacy levels of Financial institutions, which was on expected lines, we have also observed a robust regulatory focus on the non-financial risk profile of individual institutions.

Growing complexity, scale, and plausible system-wide impact of non-financial risks gain regulatory attention on Financial institutions and the supply chain.

The increased reliance on technology and interconnectedness with third parties and technology partners in the new financial ecosystem has meant that the non-financial risk profile of individual institutions has changed multifold in terms of its scale and complexity.

Non-financial risk is increasingly being viewed as a potential threat to pose a systematic risk to the operational resilience of the financial system itself. Solid and coordinated supervision efforts are observed right from consultation, rulemaking, standard setting, and enforcement across legislations especially in Europe.

We observe new regulations covering information and communications technology (ICT) risk management, third-party risk management strategy, scenario planning, operational resilience, and technology governance. New regulations and wider remit of regulators cover information and communications technology (ICT) risk management, third-party risk management strategy, scenario planning, operational resilience, and technology governance. Crucially, these regulations will have an enterprise-wide impact and reach out to third-party suppliers.

Non-financial-risks-gain-regulatory-attention-on-banks-and-the-supply-chain

Supervisory reports, industry consultations and surveys in both the US and Europe continue to highlight the potential impact of non-financial risks. Policy responses are also in line, providing standards, rules, and guidance.

Potential impact of non-financial risks in US and Europe

Consistent risk management standards designed to avoid system-level disruptions

Newer emerging technologies, newer participants, and interconnectedness of various market participants mean that any operational resilience failure of individual organizations can quickly spread across the eco-system, thereby causing systematic risk. Therefore, it is not sufficient to assess and monitor the operational resilience of individual organizations; instead, regulators are now adopting a holistic system view of non-financial risks in the eco-system.

A detailed study of the new and proposed regulations highlights supervisors promoting consistency in risk management practices among Financial institutions via regulatory frameworks on technology governance, regulatory standards, toolkits, and guidelines.
regulatory frameworks on technology governance, regulatory standards, toolkits, and guidelines

The maturity profile of NFR Risk management usually differs significantly between Financial institutions. These common standards are expected to align NFR Risk management and reporting practices similar to financial risk management and reporting pathways.

This consistency is critical for efficient supervision while enhancing the industry’s ability to mitigate and recover from any system-level ICT-related disruption.

 

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Regulatory Compliance for 2023 – The EU Impact

Regulatory Compliance for 2023 – The EU Impact

The many C’s of Regulatory Compliance – consumer protection, climate risk management, cryptocurrency, CRA regulatory modernization, and cybersecurity – all call for competent change management. The best suggestion is to prepare banks’ change-management processes for whatever happens because unpredictability is the norm.

What is the current level of risk appetite for your institution?

The first order of business will be to undertake a thorough risk assessment, keep it current, and use it to ensure that the risk assessment considers cybersecurity, BSA/AML, UDAAP, the entire product life cycle, and Fair Lending and Third Party Risk. The next logical step is to calculate inherent risk accurately in light of strategic choices and economic variables. One way to effectively answer the question around the level of risk appetite is when a BFSI institution streamlines its regulatory reporting by automating it.

The EU Impact

The European Banking Authority (EBA) will actively begin preparing to be able to carry out the new oversight responsibilities it will receive, along with the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), in light of the political agreements reached in 2022 on the Digital Operational Resilience Act (DORA) and Markets in Crypto-Assets (MiCA) legislations (ESMA).

Making the Mindset shift

Digital transformation is a continuum. Due to necessity, financial services companies have had to implement technological solutions in recent years quickly. While there are several advantages to be obtained from the successful application of technology, there are also hurdles that must be managed. To shift the mindset, FIs must see the changing regulatory compliance as an opportunity and not an onerous burden.

A Sneak Peek – Maveric’s Comprehensive RegTech Study

As banks increasingly rely on digital assets for greater oversight and clarity in the regulatory fragmentation geopolitical setup, Maveric’s report empowers C-Suite with a powerful tool to navigate a climate focused on economic recovery and customer impact.

The 2023 Maveric RegTech report provides banking leaders with a comprehensive view of significant regulatory changes across regions, platforms, and tools.

A Sneak Peek – Maveric’s Comprehensive RegTech Study

As banks increasingly rely on digital assets for greater oversight and clarity in the regulatory fragmentation geopolitical setup, Maveric’s report empowers C-Suite with a powerful tool to navigate a climate focused on economic recovery and customer impact.

The Way Forward

The Russian invasion of Ukraine required swift adaptation of Europe’s ambitious agenda for financial services policy, causing new upheaval to global markets. Nonetheless, the conflict and its economic repercussions have increased the significance of crucial European policy goals, including achieving strategic autonomy, switching to green energy, and reducing regulatory fragmentation.

2023 is a crucial year for European financial regulation as the policy-making process accelerates and significant regulatory reforms start to take effect, in addition to the ongoing geopolitical and macroeconomic instability.

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Regulatory Compliance – The US Impact

Regulatory Compliance – The US Impact

Federal banking authorities are monitoring how the banking industry is changing. On the one hand, banking authorities are utilizing their current supervisory authority to safeguard their operations. On the other, banks are strongly discouraged from dealing with cryptocurrency assets due to state, federal, and international regulatory activities.

Expanding data accessibility and enhancing data quality are top concerns. To begin with, the subject of BFSI regulatory compliance (program mandate and components) is a complex one.

As significant questions face FIs in 2023 on how regulatory frameworks should be extended to counter consumer risks, a vital question comes to the fore. How must banking overseers raise their priorities to become more data-dependent?

The perils for not doing so are immediate and well-known.

Consider this: RBI (India’s Central Bank) imposed a penalty of INR 3.06 Crores on Amazon Pay Services for non-compliance with KYC and prepaid instruments.

Regulatory Compliance – The US Impact

Section 1071 of the Dodd-Frank Act – New Rules for Small Business Data Collection

The section amends the Equal Credit Opportunity Act (ECOA) that requires FIs to aggregate, maintain and submit data to CPFB (Consumer Financial Protection Bureau). Most earmarked businesses (minority-owned, women-owned) with at least 25 small credit transactions in the last 24 months are to comply with business data requirements before March 2023.

Adverse Impact on Cryptocurrency Sector

Due to increased caution brought on by the industry’s instability, Crypto businesses face an uphill journey to obtain institutional funding. The plummeting retail investors’ interest in cryptocurrency adds to the substantial drop in Venture Capital. Consider the panic, as a report estimates that $540Mn was money-laundered (Crypto cash since 2020) using a service called RenBridge.

Impact of Durbin Amendment on Banking-as-a-service

The Durbin Amendment does not apply to banks with assets under $10 billion, and these institutions are permitted to impose higher interchange fees for processing debit card transactions. The law impacts smaller banks’ tactics that support debit card systems offered by Fintechs, where the partners often split interchange revenue. There is a conflict for smaller banks in BaaS between seeking growth and reaping the rewards of staying under the $10 billion asset threshold.

Will 2023 see a long-term shift in debit programs?

A Sneak Peek – Maveric’s Comprehensive RegTech Study

As banks increasingly rely on digital assets for greater oversight and clarity in the regulatory fragmentation geopolitical setup, Maveric’s report empowers C-Suite with a powerful tool to navigate a climate focused on economic recovery and customer impact.

The 2023 Maveric RegTech report provides banking leaders with a comprehensive view of significant regulatory changes across regions, platforms, and tools

The Way Forward

Undoubtedly, the winning combination for BFSI regulatory compliance outlook is to balance innovation with consumer protection. However, the financial services sector is facing difficult operating conditions as a result of a complicated mix of factors including high inflation, erratic interest rates, interruptions in the supply chain, and weakening economies. In light of this, boards and executive teams ought to ask- what measures are being taken to support consumers and maintain resilience in the face of impending economic difficulties. The way BFSI entities respond to that question will be influenced by their solid understanding of the constantly changing regulatory environment.

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Regulatory Compliance – Orchestrating 2023’s Banking Growth

Regulatory Compliance – Orchestrating 2023’s Banking Growth

Globally, the complexity faced by FIs, and banks are expanding.

 

The causal factors are many – ESG compliance, Heightened resilience standards after the COVID-19 crisis, cyber assaults, and the impact of Russia’s invasion of Ukraine on energy markets

 

Evolving regulations in response to those challenges complicate matters even more. Firms that unlock new avenues of growth will reinforce competitive advantages by anticipating regulatory changes. For this, banking leaders should comprehend the regulatory landscape, but even before that, they must answer the question: what is the need to invest in digital or technology?

 

The importance of Regulatory Compliance Swells Across.

In UAE’s 2023 launched FIT (Financial Infrastructure Transformation) program, its central bank (CBUAE) has earmarked the establishment of financial cloud infrastructure and eKYC and open finance platforms to improve regulatory compliance.

 

“The FIT program embodies the directions and aspirations of our wise leadership towards digitizing the economy and developing the financial sector,” says HE Khaled Mohamed Balama, governor of the CBUAE.

 

2023 is about the Integrated Risk and Compliance Function.

 

Continuing from last year, the compliance functions becoming more tech-enabled, the enterprise risk programs embracing a higher degree of agile principles, and the multidimensional portfolio management systems are integrative approaches that will proliferate.

 

How will the RegTech winners differentiate themselves?

 

  1. Thinking creatively about how operational requirements are affected by laws, rules, and regulations across enterprises and processes
  2. Establishing criteria for the significance of risk (for example, material risk, tolerance levels, and risk appetite)
  3. Maintaining a thorough system for identifying and evaluating potential hazards (objective risk-assessment scorecards and risk-measurement methodology)

A Sneak Peek

 

Coming soon is the 2023 Maveric RegTech report that provides banking leaders with a comprehensive view of significant regulatory changes across regions, platforms, and tools.

 

Report Sections

 

  • A summary of the significant regulatory changes and implications.
  • The enabling platforms – Bifurcated by established and emerging platforms and information necessary to evaluate their use.
  • Prevalent tools – Bifurcated by established and emerging uses.

Jurisdictions covered

 

  • EU and US
  • Regulation – FCM and Regulatory reporting, including Crypto, ESG, and DORA.

Platforms and tools covered

 

  • Risk management
  • Transaction monitoring and reporting
  • Customer identification and AML/KYC
  • Regulatory intelligence
  • Regulatory reporting
  • Data tools aligned to Reg Tech

The Way Forward

 

Regulatory changes care about something other than the size or resources of a business. No matter how many resources it has, any organization will have a hard time keeping up with the size and number of regulatory changes. Everyone is affected by changes in regulations in the same way, which raises the same worries about being able to take it all in and put it to use.

 

Priority number one in addressing these challenges is the implementation of technology. In an environment where banks are subject to remote supervision, regulators anticipate enterprise-wide risk management systems that connect diverse elements of an organization and ensure that everyone is executing the change uniformly.

 

Maveric’s Comprehensive RegTech Study

 

As banks increasingly rely on digital assets for greater oversight and clarity in the regulatory fragmentation geopolitical setup, Maveric’s report empowers C-Suite with a powerful tool to navigate a climate focused on economic recovery and customer impact.

 

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