KPMG’s annual Evolving Banking Regulation report concludes that many banks and regulatory bodies have not achieved as much as they should have since the crisis.
However, as the complexity of the regulatory reform agenda continues to mushroom, KPMG warns that the ‘more and more of everything’ approach will not achieve the desired outcomes for customers, investors or regulators.
Constantly changing goalposts
Giles Williams, EMA head of KPMG’s financial services regulatory centre of excellence, commented: ‘The problem is that while we are very much on this journey, no one knows the final destination. The goalposts are constantly changing and additional layers of complexity keep piling up from regulators with differing agendas and conflicting timeframes.
‘The ongoing uncertainty is the killer, making effective planning almost impossible. As unanswered questions keep surfacing, it is clear that we are a long way from resolving the complexity of the big cross-border banks.
‘The length of time it takes to finalise initiatives is also letting us down. If the recently released structural reforms from the European Commission are implemented as planned in 2017 and 2018, almost a decade will have passed since the height of the financial crisis.’
KPMG’s report predicts that there will be more casualties before the financial crisis is over.
New regulation is ‘game-changing’
Giles Williams continued: ‘The waves of regulation are engulfing banks more rapidly than many can manage. The emerging regulation is game-changing and there will be more casualties before things get better.
‘The European Central Bank’s comprehensive assessment will be a moment of truth for the European banking sector. Mario Draghi has gone on record saying that a number of banks must fail the upcoming asset quality review and stress tests to ensure credibility in the process is maintained. There is also likely to be a spate of consolidation as weaker players are acquired.
The end of the global universal bank
‘Despite efforts to create a global regulatory agenda, individual countries and their local regulatory priorities are coming first. This ‘localisation’ is a serious threat to banks being able to operate a sustainable global business model without adding costs or reducing services to global clients. The end of the global universal bank is fast approaching as many global entities have been split into a patchwork of smaller locally or separately regulated subsidiaries. The impact of all of this on local, regional and global economy is the main concern.’
The report also suggests that the banking industry’s existing business models will in large part have to be discarded. KPMG outlines four areas banks must focus on, including structure, conduct and culture, data and reporting, and risk governance.