Time to increase the investment in integrated regulatory practices

Strategic end-to-end regulatory management

A banking charter is the entry ticket into banking; the regulation and supervision are the price banking institutions need to pay. Gone are the days when the board and a banking organization’s senior management could leave “regulatory matters” to compliance, legal, regulatory affairs, or some other control or support function. Siloed regulatory management functions across (i) the entire life cycle of regulatory issues and regulatory examinations, (ii) regulatory change from new and proposed laws, regulations, and supervisory guidance or priorities, and (iii) regulatory remediation management may not be inadequate for consistent and sustained success, requiring a more strategic approach. In discussions with many bankers and CEOs of large US and foreign banks operating in the United States, some believe that mastering regulatory compliance and having an efficient operating model that clearly addresses regulatory expectation is the competitive differentiator for them.

From our discussions with boards, management, regulators, and industry stakeholders, as well as our understanding of regulatory preparations and responses, it appears that regulators are expecting the industry to treat regulatory management as a critical strategic imperative, embracing an integrated and coordinated approach owned by the board and senior management and led by an empowered senior leader. End-to-end regulatory management should now be top of mind for the board and senior management as part of strategic regulatory management, especially when analyzing new laws, regulations, or guidance; addressing specific regulatory issues; or undergoing organizational changes that will have regulatory and supervisory impacts.

Effective strategic regulatory management requires clear ownership and alignment among legal, regulatory affairs, COO/CAO, and business lines. Key factors include leadership, skill sets, scope, timing, reporting lines, communication, centralization, consistency, regulatory engagement, data, and management information system.

The road ahead

By embracing a broad framework that integrates regulatory examination management, regulatory change management, and regulatory remediation management, banks can enhance compliance and operational efficiency and potentially maintain a competitive edge.