Regulations: Burden or insurance?

Abstract

Effective regulation is in the interest of banks — the implemented regulatory requirements make sure the sector becomes more resilient against future financial shocks and makes the banking system safer. Increasing regulatory requirements put pressure on the financial sector, in terms of human resources, IT (information technology) investments and overall implementation costs. Banks need to focus on efficiency, optimising costs and processes, while leveraging on automation and digitisation. The cost of regulation — both in terms of implementation and monitoring — can be allocated with different methodologies to the provided services and products. The aim of financial participants is to offer these services and products under a proper pricing structure where the overall customer offering remains competitive and, most importantly, sustainable in the long term. The CSDR Penalty Regime will be one of the key challenges of the post-trade infrastructure, as it is still not known how service providers and the entire value chain will be able to address the administrative, technological and financial implications. It is critical to address the main inefficiencies before the settlement discipline regime comes into effect, in order to avoid expected high penalty charges. Keeping a strict regulatory regime is important to lower the risk profile of the banking industry, the compliance of which shall be part of the ‘business as usual’ daily banking activities, ensuring the safety of clients’ assets at all times, even under difficult financial periods.