John Brearton, Senior Consultant, Banking, Insurance and Regulatory, Hitachi Solutions

In the wake of recent high profile conduct and compliance scandals, such as the payment protect insurance (PPI) mis-selling scandal, which have cost the banks millions of pounds in reparations, rebuilding trust between bank and regulator is more critical now than it has ever been. Whilst the relationships between bank and regulator extend across the organisation and exist in many different departments and at many different layers, none is as important as those that exist at the very top. Regulators have made it clear that the responsibility for ensuring that the organisation is acting within the guidelines sits squarely with the senior leadership. Clearly the argument that the senior leadership cannot have knowledge of everything that happens within the bank is no longer an acceptable one. The key to maintaining relationships at this level is insight.

It may sound simple but for an organisation as complex and large as a global bank, it is far from that. What every CEO fears is the regulator finding out about something before they do. But in a global organisation which operates under the jurisdiction of many different regulators, in many different countries, this is a real problem. A global bank has to deal with hundreds of different regulators worldwide, so how can the senior management gain insight into all of these different conversations? This is the question currently on the minds of the heads of regulatory relations, compliance, risk and legal, at most large banks – certainly the category one banks – those regarded as too big to fail.

John Brearton

Interactions between the CEO of a bank and a regulatory body are not going to be too frequent but when they do occur, they need to be smooth. The regulator needs to feel that the senior management team has proper oversight and control across the bank’s operations. Trust is not something that is easy to gain and retain. It has to be built up over time on the basis of continual transparency, reliability and accuracy.

Since the financial crisis there hasbeen an increase in the number and complexity of regulations banks need to adhere to. But it is not simply just a question of there being more, it is also the fact that there are now more layers of oversight across all areas, and stricter terms governing the quality and timeliness of the information that needs to be shared.

So what does this all mean from a technology perspective? It comes back (like many things these days) to data. Not just data, but insight. When it comes to these high-level relationships, this isn’t about transactional data; it is about information that pertains to the relationship. In reality it comes down to relationship management.

In order to manage the relationship with the regulators pertinent information needs to be updated and stored centrally for functional and country heads to be able to access as needed. For example, who from within the bank has met with the regulators this year and why? What additional pieces of information have we shared with them and why? How quickly have we been able to meet their requests? Have there been any problems/ hiccups/ glitches? Are there any changes on the horizon that we need to be aware of? Access to this information from across local offices is vital if senior managers are to have truly global insight across their institution.

Historically this information would have needed to be manually pulled together into a single document. It would usually be stored locally as a Word or PDF document and updates would be shared via email to a limited number of people. But this is not only insecure and inefficient but also hard to access remotely. Banks are considering solutions that can be populated automatically, stored centrally and accessed remotely via whichever secure device the executive is using.

This is challenging because it is not simply about collating and sending reports, it is also about understanding value and context. This is why the systems required to support the regulatory relationship are different from a standard business intelligence system. Such solutions will be configurable and adaptable to the nuances of the individual organisation as well as the complexities caused by expansion and acquisition. It is about knowing that it is not just about the ‘big data’, it is also about the small but hugely valuable. The kind of insight that can help establish and maintain trust. How to ensure the security of this information will be an additional consideration for banks.

So what are banks doing about it? Well the very large banks have already started looking at and implementing a new breed of regulatory relationship management system instead of just reporting, data aggregation and presentation tools. The new regulatory relationship management approach requires systems that are specialist stakeholder management systems. Banks then need specific versions that cater for prompt and secure escalation, tracking and trending of global regulatory subjects, or topics, and strict internal security. This new breed of system must fit across all lines of business – retail, credit cards, business, corporate and investment banking.

In today’s banking landscape, trust from the regulators is possibly the single most important piece of collateral that the CEO of a bank or insurer can have. Not only will the organisation be able to focus on the business, without having to worry about interference but it is also more likely to be listened to when it comes to future regulatory policy.