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Guest blog: Proportional representation - regulation for smaller institutions

Guest blog by David Hulmes, EMEA Client Management & Strategic Accounts, Suade

Guest blog by David Hulmes, EMEA Client Management & Strategic Accounts, Suade

Regardless of the size of the financial institution, regulatory mandates have always grown in complexity and the amount of information they require. Since the financial crises of 2008 in particular, banks have not denied the requirement for regulation as much as request that the regulation should be better: that the reporting process should be improved, associated systems and controls become less onerous and the costs of regulation be proportionate to the benefits. Indeed, the “cost of compliance” imposes a burden that has traditionally been heavier for smaller institutions, preventing them from competing effectively.

The challenge lies in the fact that regulation has to impose a universal set of benchmarks and criteria to ensure regulations safeguard both the consumer and hold all institutions accountable. To balance this fundamental objective, proportionality has been an increasingly important matrix by which any new legislation is measured and judged. But it has never been an exact science, and it even appears to make the regulatory reporting process more complicated. Indeed, proposed regulations now undergo lengthy consultative phases as thresholds and applicability are defined and agreed. Once finalised, regulation is often subject to interpretation and open to scrutiny and challenge. And often it is smaller banks and financial institutions which find themselves ill-equipped to manage and resource such processes. 

The key challenge for Chief Financial Officers and Chief Risk Officers is keeping up with the changing demands around regulatory reporting and compliance in a controlled and cost-effective manner. This problem is further amplified for many smaller banks spanning multiple regulatory jurisdictions – typically branches and/or subsidiaries of foreign banks operating in the UK. Oftentimes branches can have significant challenges accessing and sharing data with parent institutions and data centres based overseas and under highly indirect control. 

Solving the proportionality issue through technology 

This has resulted in a movement towards technology-driven improvements on the part of financial institutions and reflected by a number of regulatory authorities attempting to draw guidelines towards the standardisation of reporting including the Bank of England, the Financial Conduct Authority, the European Central Bank and the Bank for International Settlements. Progress has been slow and disjointed, but the requirement for proportionality should diminish in importance as such initiatives take hold.

Cloud computing notably represents a compelling opportunity for a smaller bank to control and reduce its cost of regulatory compliance. Regulatory reporting platforms can also be made available as externally managed services run and managed by the provider on its own cloud. Often referred to as RegTech innovators, such companies are better equipped to respond to regulatory changes and developments. They significantly improve the efficiency and reducing the total cost of compliance, therefore lessening the burden imposed by dis-proportionate regulation.

Suade’s RegTech Forum – City of London, 29th of November 2022

Dan Jones, Finance Director of Mansfield Building Society, will discuss the challenges of being a small business and having to comply with an exponential number of regulations at Suade’s RegTech Forum on the 29th of November, with senior executives from the Bank of England, KPMG and Shawbrook.

This in-person event will provide a platform for regulators and industry leaders to discuss the challenges in addressing the ever-changing regulatory landscape. They will be covering various topics including Disruptive Transformation, Data Harmonisation, the impact of RegTech on the industry and the Reliability and integrity of regulatory reporting.

Interested in attending? Click here to register.

The event is free to attend for Building Societies


The views, opinions and positions expressed within guest blogs are those of the authors and do not necessarily represent those of the BSA.