Financial services organisations are grappling with the biggest shake-up in regulation for a generation. Implementing reforms ranging from
Basel II and
Sarbanes-Oxley to the ever growing array of
anti-money laundering provisions has been a costly and complex challenge. Companies in the EU face the additional hurdle of complying with a raft of directives emanating from the European Commission’s Financial Services Action Plan, including
MiFID and
Solvency II.
The potential payback should include a more informed basis for decision-making and greater strategic assurance in the face of the ever increasing complexities and uncertainties of modern financial services business. Yet it would appear that many institutions believe that the expense, burden and indeed risk of ever encroaching compliance still largely outweigh the business benefits. Over-regulation topped the
Banana Skins poll of the risks facing banks for the second year running in 2006.
More effective embedding of compliance and related governance and risk management into frontline operations could help financial services organisations to realise the business benefits of their investment. For example, the scenario analysis required by
Basel II could help to provide a more granular and forward-looking approach to capital allocation and the setting of credit limits. However,
Effective capital management: Economic capital as an industry standard and other research carried out by PricewaterhouseCoopers suggest that potentially useful information is often poorly disseminated around the organisation. Even if business units do receive such information, they often do not understand how it can be applied.
Ultimately, today’s compliance costs would still appear modest when compared to the billions that can be wiped off share values if lapses in probity, business conduct or financial reporting come to light. Indeed, the increasing pressure to improve controls and accountability is coming from investors, customers, employees and other key stakeholders, not just governments and supervisory bodies. Companies may therefore need to look beyond narrow regulatory expectations to develop a more holistic and proactive approach to compliance – one that embraces broader ethical and strategic considerations.
How PwC is assisting financial services organisations
PricewaterhouseCoopers has a global network of specialists who can help companies to develop an effective and cost-efficient approach to compliance. With assistance from PwC, you can turn compliance into an opportunity to improve management processes and strengthen confidence in the business.
