Governance and technology to play key regulatory roles
Regulations in the financial sector are expected to focus on governance and supervision, while regulatory technology (regtech) will help financial institutions comply in a more cost-effective way, Deloitte says.
“We don’t expected a rewrite of big picture regulatory rules such as the DoddFrank Act or Basel III, as happened after the global financial crisis in 2008,” said Kevin Nixon, global and Asia-Pacific lead partner at Deloitte’s centre for regulatory strategy. “What we’re moving towards now is more of a subjective assessment of how risks are managing and evolving in the system, meaning a big focus will be put on governance of financial institutions and supervision.”
Focus in these areas implies requirements such as a robust, wide-governance framework, continuous and dynamic interaction with the regulator and more data-reliance i n monitoring financial institutions.
Mr Nixon said that the global regulatory trend will also put a greater emphasis on stress testing to make sure that financial i nstitutions can survive in extreme circumstances.
The global financial crisis in 2008 saw a drive in strong regulations for financial institutions, particularly in regards to which businesses they can or cannot engage in.
Regulatory divergence between countries is another trend that is happening worldwide.
He said international agreements such as Basel IV, which is currently being drafted, might not be as widely adopted as earlier agreed.
“There has been talk regarding the new US administration deregulating its financial sector, but we believe it’s more likely changes will occur to the way regulators regulate, which could also have ripple effects around the world,” said Mr Nixon. “Financial regulations tend to move towards a more nationalistic approach rather than a global one.”
He said that regulatory technology or regtech could assist both the regulators and financial institutions in three aspects: compliance, communications and monitoring.
Adopting new technologies could help financial institutions comply with regulations more cheaply and efficiently.
In some countries, financial institutions have already adopted blockchain technology in specific activities such as certifying contracts for syndicated loans.
From the regulatory aspect, technology such as artificial intelligence and machine learning can help monitor illegal transactions made via banks while blockchain can assist in the know-your-customer process for preventing illegal activities such as money laundering, Mr Nixon said.