Basel III is done, what’s next?
Deloitte announces Top 10 regulatory themes for financial services in Asia Pac in 2018
11 January 2018: With the finalisation of Basel III, the regulatory agenda in Asia Pacific will now become firmly focused on the future according to Deloitte's 2018 Asia Pacific Financial Services Regulatory Outlook report, released today. According to the Top 10 themes for 2018 in the report, including the potential for divergence in global regulation, the pressures to improve industry culture and conduct will continue, with a particular focus on individual accountability, industry codes and embedding customer centricity.
Innovation, data management, digital disruption, and cyber resilience will also be top of mind for Asia Pacific supervisors. Looking further ahead, firms should expect growing regulatory interest in the opportunities and risks associated with climate change and ageing populations.
"A sense of ‘policy fatigue’ has been taking hold from a global perspective, following a decade of intense post-crisis rule-making. This was apparent in the difficulties in reaching agreement on final calibrations to Basel III reforms, as well as slipping timelines for local implementation of international regulation," said Kevin Nixon, Global & Asia-Pacific Leader, Centre for Regulatory Strategy, Deloitte.
However, “There is still a long tail of implementation ahead and firms will be under pressure from more intense supervision going forward. What is more, risks within the financial services industry continue to evolve and with this comes a shift and change in regulatory interest. This is very much evident in the intensity of supervisory activity around firm conduct, and also disruption and innovation."
The Deloitte Asia Pacific Centre for Regulatory Strategy report outlines the top ten issues over the next year, grouped into four focus areas:
- The future of global regulation
- Culture and conduct
- Data & digital disruption
- Emerging structural risks.
I. The future of global regulation:
1. Dealing with divergence and uncertainty
The combination of regulatory fatigue and the political trend away from a globalist approach to policy making, have raised questions regarding the future of globally agreed standards for financial regulation. Difficulties in reaching agreement on Basel III and slipping timelines for implementation of international regulation, suggest a diminishing appetite for harmonised regulation and global coordination, and a trend toward regulatory fragmentation and home-biased rulemaking.
2. Managing the long tail of implementation
Although most of the large pieces of global regulatory reform have been finalised, and there will likely be a slowdown in new international rulemaking, there is still a long tail of implementation work ahead for Asia Pacific firms. Recovery and resolution planning, IFRS 9, and the fundamental review of the trading book (FRTB) reforms will be particularly challenging.
3. Understanding the reach of foreign regulation
Even if global standard making and regulatory harmonisation slow, the internationally integrated nature of the financial system means that rules made in significant economies have an impact beyond national borders. Many firms in Asia Pacific struggle to understand how rules made in other markets will apply to them.
II . Culture and conduct:
4. Strengthening individual accountability
Some significant steps have been taken to enhance individual accountability in Asia Pacific and these will need to be embedded within firm governance frameworks. This is part of a global trend to increase accountability and responsibility of conduct to individuals, particularly senior management, as a means to improve conduct and culture within firms.
5. An increasing emphasis on industry codes and professionalism
Reforming culture within the financial services industry has been a priority for regulators across Asia Pacific and will continue to be so in 2018. Alongside regulatory initiatives, “soft law” techniques are being enlisted, such as “naming and shaming”, promoting compliance with “voluntary” industry codes and encouraging greater professionalism within industry.
6. Building a customer attuned business
Many regulators have expressed the view that prioritising customer outcomes is at the heart of improving culture and conduct within financial services firms. There is a focus on providing customers with suitable products and services, appropriate to their circumstances.
III. Data and digital disruption
7. Knowing your data
In 2018, knowing your data will be as important as knowing your customer. Regulators continue to be disappointed with risk data capabilities within the financial services industry. Regulators are also wanting industry to be far more open and transparent with their data. At the same time, regulators are putting pressure on firms to have robust data protection and privacy programs in place.
8. Responding to the influence of TechFins
In 2018, the discussion around harnessing opportunities and managing risks brought about by innovation is moving to the impact of the technology and e-commerce giants that provide financial services (“TechFins”). Timing considerations on bringing TechFins within the regulatory remit, understanding and managing prudential and consumer risks, as well preventing market abuse, will be on the minds of regulators.
9. Constructing a cyber resilient system
Regulators have expressed concerns about a cyber crisis in the system. Cyber resilience within individual firms will continue to be important for regulators across the world in 2018, but resilience in the system as whole will take on more prominence.
IV. Emerging structural risks
10. Assessing the impacts of ageing populations and changing climates
Regulatory attention has been turning to two large looming developments: ageing populations and climate change. They will increasingly be considered in regulatory approaches and work plans in 2018 and beyond, as they present risks and opportunities for financial services firms.
For more analysis and details on the report, please visit the Deloitte Asia Pacific Centre for Regulatory Strategy.