Perspectives

Look on the bright side of heavy regulation

Finding opportunity in compliance

Financial institutions are finding opportunities in compliance. Learn how your business can turn regulations into a competitive advantage.

By Jeannot Blanchet

Since the global financial crisis began, financial institutions in Canada and around the world have been hit by a veritable tsunami of complex regulations. Many banks, insurers and other financial institutions (FIs) have paddled madly to keep up, making major investments in their risk, capital management and compliance infrastructures by taking steps to strengthen their organizations’ risk culture.

Understandably, many of them view the increasing volume and complexity of regulations as a burden, not only in terms of compliance, but also on their ability to grow their businesses. It`s a common theme in our conversations with FI leaders in Canada. The dominant attitude is one of resignation.

But it doesn’t have to be that way.

The investments FIs have made in recent years to meet stringent regulatory requirements have brought business benefits above and beyond their original purpose.

Adjust headspace to get ahead

It’s time to look at compliance and the regulatory environment in a new light. (Tweet this)  A strong compliance effort could help organizations differentiate themselves from the competition. The energy FIs put into better understanding their business, customers, risks and capital can be used to drive changes in how and where the organization operates in the future, up to and including its business mix.

The potential is already clear. The investments FIs have made in recent years to meet stringent regulatory requirements have brought business benefits above and beyond their original purpose. For example:

  • In building stronger regulatory, compliance, risk management and audit capabilities, FIs are gaining important new business acumen.
  • Their ability to understand new regulations and how to innovate in this re-regulated environment has improved.
  • Investments in technology are resulting in significantly greater data collection and analytics capabilities, which can be exploited to give FIs an enhanced, enterprise-wide view of their businesses, risks and customers that can help them identify opportunities and avert potential problems.
  • FIs that take the initiative to fully grasp the impact of new regulations on their business and to develop proactive responses will be well-positioned to set themselves apart from — and even ahead of — their competitors.

Seek the silver linings

FIs that get out in front of the regulations and use them to drive organizational change, economy, efficiency and effectiveness stand to create competitive advantages that could restart or accelerate their growth. Here‘s how:

  • Harness regulation to drive new ways of doing business: In assessing the impact of new regulations on your business, look not only for what might need to be scaled back or shut down but also for what may now be permitted. For example, understanding the implications better than your competitors may allow your organization to introduce new products and innovations your rivals hadn’t taken the time to see coming.
  • Focus on capital efficiency, not just capital sufficiency: Much recent regulation has centred on ensuring FIs set aside sufficient capital to prevent sudden collapses or near-collapses. But that leaves less capital to invest in business and growth opportunities. Explore how to wring every last bit of value from the non-regulatory capital available, such as backing away from certain capital-intensive activities to focus on fee-based businesses, such as wealth management, that provide stable, predictable revenue without gobbling up scarce capital.
  • Make regulatory compliance business as usual: Embed compliance-related activity into the daily routine across the organization. It improves overall compliance and can free resources to focus on gaining insight into the strategic implications of new regulations on customers, product offerings and even business models, and to develop responses before regulations come into force. The result can be a powerful “first-mover” advantage.
  • Partner with regulators: Unlike some jurisdictions, Canada’s financial institutions and regulators have a respectful and productive working relationship. This presents a golden opportunity: if FIs share their insights and ideas into the best way to address issues before problems occur and work with regulators to develop solutions, they might avoid cumbersome, costly and potentially less-effective regulation altogether.

Take the long view 

Financial institutions shouldn’t hold their breath and hope regulations will be scaled back as the sting of the global final crisis eases. Governments and regulatory bodies will play a larger, not lesser, role in financial services for the foreseeable future.

FIs would serve themselves best by viewing new regulations as potential opportunities to improve rather than as a burden to be borne. We encourage them to engage with regulators proactively, thereby helping shape the regulatory agenda.

The FIs that can accentuate the positive capably will undoubtedly reap business benefits and competitive advantage.

What has been your experience complying with the increasing volume and complexity of regulations? Has your organization looked for new opportunities? Discuss it further with me.

(PDF, 135 KB)
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