2017 ROUND-UP IBS Journal December 2017 35


Technology 10 years after the crisis – how regulators reacted


Digitisation, fraud, and the need to increase margins are some of the key factors driving regulation. FCA’s CEO Andrew Bailey gives us an insight into what the regulator has been responding to in the past few years, and what the results are


Junior Reporter Henry Vilar


R


egulation has become the driving force of all areas in the industry. Now more than ever, every company is bracing for the arrival of big chunks of regulation, like PSD2 or


MiFID II, which are sure to ruffle some feathers. Next month, we will kick off the year with a hard look into these types of regulation, but for now, it’s best to look at the attitude that arguably one of the most important regulatory bodies in Europe, the FCA, has adopted throughout the year. And more importantly, how we’ve arrived at this point.


It has been a busy time for banking in the UK. Sixteen brand new banks have been authorised over the last five years, with 38 in the pipeline, which must be a modern record. The rate of increase in the use of digital and contactless channels is fast and unlikely to slow down, which brings an increase in information flow between the bank and the customer. This has consequently raised the number of operational threats from fraud and cyber-attacks.


Andrew Bailey, the Chief Executive at the FCA, has said recently that: “One of the biggest changes is that ten years ago the pressure was on raising deposits, on funding what had become a very substantial ex-pansion of balance sheets over the previous five years or so. There was a huge pressure on funding, which inevitably pushed up the cost and thus squeezed margins. Alongside that was the growth in the opacity of asset structures which made it harder to assess the likely future creditworthiness of borrowers and thus the solvency of banks. It was this lack of confidence in future solvency, combined with a critical shortfall of capital levels that was the undoing of many of those that failed.


”Today the greater challenge is to find lending opportunities that enable sustainable net interest margins to be earned. Although it is a simplification, assets often appear to be relatively more scarce than fund-ing. The regulators observe carefully for excessive risk- taking in lending because the temptation is there. Fortunately, the experience of the crisis has led to a radical overhaul of the regulatory tools to do this – with stress tests and enhanced asset quality assessment; it feels like a very different world.”


He said that in the crisis and the aftermath there was a marked trend for more banks to enter the current account market, which was perceived to be lower cost funding, but now, he believes trends might be going the other way, as current accounts are


“The experience of the crisis has led to a radical overhaul of the regulatory tools,” says Bailey


regarded as more expensive regarding operational costs.


Bailey believes that ringfencing is a useful development, but not on its own the answer to these more fundamental challenges. “It is more important as a means to create the wherewithal to separate, and thus preserve, critical retail banking services in the event of a bank failure. It is thus important to solving the too big to fail problem, and as such is welcome. I do not, however, believe that it solves on its own broader cultural and conduct issues because, as we have seen in the last decade, misconduct has been as prevalent in retail as in investment banking.”


A marked acceleration in the pace of technological innovation has also affected the provision of financial services which has fundamentally changed service delivery and access to finance, but also opened up generational and other divides in the availability of benefits of this innovation.


Bailey finishes up pointing towards three areas where the FCA sees that work needs to be done. “I want to set out some of the challenges for the FCA as financial conduct regulator by focusing on three big areas: consumer credit; long-term savings and retirement provision; and other impacts of an ageing population.”


www.ibsintelligence.com


Andrew Bailey


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52