With 2016 fading fast into the rearview mirror, we’ve taken a close look at the key regulatory and technology trends from the past year and put together our thoughts on what’s to come in 2017. With regulation constantly changing around the globe, financial professionals would be remiss not to reflect on 2016 themes and consider important milestones for the next year.
2016 Lessons – Culture & Conduct Failures… and All Those Fines
This past year, significant fines were imposed around the globe on financial institutions that failed to implement proper culture and conduct procedures and instill a culture of compliance from the very top.
The most notable this year was Wells Fargo, a case study of unhealthy micro-climates within a single – albeit enormous – organization, showcasing the need for a firm-wide culture of compliance. Climates where expectations and rewards are not created with compliance and proper due diligence as top of mind.
Just a few months ago, details emerged around Deutsche Bank being fined $14 Billion just by US regulators – a fine that will cause shock effects across the financial industry.
While regulators around the globe grapple with ways to implement proper procedures, and checks on the banking system, culture & conduct issues are not so easy to manage without proper internal controls and alerting within a firm. We recently dug into this specific topic on the blog, looking more closely at the way culture & conduct are being regarded by regulators.
1. Blockchain Proves Its Value.
You’ve heard of it, everyone’s talking about the ways it can change finance as we know it but when will we really see ways for it to be implemented in real-life use cases? We believe 2017 will be the year that blockchain technology goes beyond proof of concept and we see true implementation cases. Blockchain will start to show its real power as critics question the real value of the technology within finance.
2. David & Goliath will Collaborate
We’ve long lived in the years of seeing larger financial institutions act on their own with smaller, innovative firms emerging to take tiny slices of big firm business. In 2017, we expect to see larger and smaller firms collaborating to take advantage of the reach of the big firms and the innovation within the more nimble smaller firms. With the upcoming MiFID II deadline, this type of collaboration will be necessary to address the regulatory changes for any firm doing business in Europe.
3. Regulatory Lessons Learned Abroad.
The theme of internationalization, especially within the financial regulation space, has emerged recently and we see this only expanding further in 2017. For many US firms, we see the ostrich effect taking effect next year as they bury their head, ignoring MiFID II requirements that many US firms still do not realize they have. In 2017 we predict a significant amount of last minute implementation projects around MiFID II, which will place great strain/stress on the business.
The good news is that US firms can learn some lessons from their neighbors across the pond as European firms took advantage of the MiFID II delay to get their ducks in a row. A lot of MiFID II jobs of late are early business stage type roles like organizational and IT change projects. With the deadline approaching, we will see a sudden ramp up, bringing massive competition for human capital in terms of knowledge and experience in the market.
4. Third-Party Risk Under More Scrutiny.
While third-party risks and technology risks have been a theme in 2016, we’ll see more regulators honing in on the risks of third-party providers and technology. This will be a global effort, with a significant amount of attention in the UK around inspecting firms. It’s yet to be seen what the hard and fast approach to this will be in the US, but there will need to be some set level of control, especially when it comes to global organizations.
5. Compliance Must Remain Central to A Firm.
With the impending new leadership in the US, many point to significantly less regulation but general consensus is that past regulatory changes have put policies in place to ensure risk & compliance are core to a firm’s culture. Compliance and risks will continue to be a core area of focus at the board level of financial firms as investor protections and risk management. We see compliance already built into financial firms today – and we predict they will continue to comply with recommended risk management protocols irrespective of changes from the White House.
With DOL and MiFID II chomping at the heels of firms today, culture, controls and auditing will be key to ensuring regulators and firms recognize what’s going on within their own walls. It will be increasingly important for firms to ask themselves – how do we measure good cultural outcomes? what controls can we put in place?