The landscape of regulatory transformation within financial services is set to evolve significantly in 2020. As organizations endeavor to implement systems that adhere to compliance standards, they must also navigate the complexities of maintaining a competitive advantage.
A report titled The Future of Regulation: 2020 Predictions from Finextra Research highlights that despite substantial investments and planning, numerous firms are struggling to meet impending deadlines. The potential for severe penalties and damage to reputations serves as a strong incentive to prepare, but many organizations still grapple with the ambiguities inherent in new regulatory demands.
The report focuses initially on the transition away from LIBOR, noting how institutions are increasingly turning to digital solutions to ease this shift and secure reliable alternatives. McKinsey estimates that 50% to 75% of banking models rely on LIBOR and will require significant redevelopment, with nearly all systems necessitating some form of remediation.
Additionally, the report tackles the challenges posed by PSD2’s strong customer authentication (SCA), which impacts not only the businesses but also their customers. In the U.S., the demand for Open Banking is rising sharply, while emerging markets like Latin America and the Middle East demonstrate the rapid deployment of these initiatives, largely unimpeded by legacy systems.
The battle against money laundering continues as both traditional and disruptive entities, such as cryptocurrency exchanges, adjust their practices to comply with the 5th and 6th Anti-Money Laundering Directives. Michael Harris, director of financial crime compliance at LexisNexis Risk Solutions, remarks on the ongoing struggle: “It’s a real-life game of financial cat and mouse, and many organizations—including some of Europe’s largest financial institutions—are merely managing to keep up with detecting and combating financial crime.”
Throughout 2020, financial institutions will seek to align with growing interest in sustainability while closely monitoring forthcoming changes to Environmental, Social, and Governance (ESG) reporting standards. Alex Liftman, global environmental executive at Bank of America, emphasizes the need for innovative financing approaches to tackle pressing global issues like climate change, stating that such efforts are crucial for attracting a wider range of investors.
Moreover, 2020 will see the maturation of GDPR, likely resulting in increased fines for non-compliance as regulators step into a more enforceable role. The uncertainties in data regulation, amplified by the UK’s departure from the EU, may further complicate interactions among firms navigating diverse legislative frameworks.
Lastly, the report reaffirms the European Banking Authority’s commitment to fully implementing Basel III standards, emphasizing their anticipated net economic benefits for the EU.
This report offers insights into the evolving landscape of key regulatory topics—IBOR transitions, SCA under PSD2, GDPR, anti-money laundering directives, Basel III, and ESG—highlighting the challenges and influences these regulatory focal points impose on the fintech and financial services sectors.
For a comprehensive analysis, access the full report here.