The UK financial services sector’s infrastructure is chronically unprepared to deal with the regulatory changes that will come as a result of the country leaving the EU, according to financial services management and technology consultancy Brickendon.
Compliance and regulatory costs have increased dramatically since the financial crisis, in an effort to avoid what can be multibillion-dollar fines – in some cases resulting in an additional USD4 billion expenditure each year.
With the regulatory burden still increasing – the Fundamental Review of the Trading Book (FRTB) is expected to increase costs by a further 200 per cent to 400 per cent on its implementation in 2019 – systemic modernisation of internal systems is required if these costs are to be managed effectively.
This has led to a paradigm shift within the internal-decision making process of financial institutions, as ensuring compliance takes precedence over pursuing fundamental business objectives such as revenue growth and operational efficiency gains.
With focus distracted from business development strategy, UK financial institutions are under-performing in relation to international competitors. The consequences of this have already taken affect: annual profits at the UK’s five largest banks last year were 63 per cent lower than in 2007, whereas US competitors reached pre-crisis profit levels as early as 2010.
“As the UK takes its first steps into an uncertain future, one thing we can be sure of is that effective management of compliance costs will be essential to the future success of our financial sector – and significant efficiency gains can be made through the modernisation and optimisation of internal business and IT eco-systems,” says Chris Burke, CEO of Brickendon Consulting.
“The extensive use of outdated IT systems within the financial services sector is seriously impairing banks’ ability to adapt to regulatory change – resulting in an unnecessary level of resources being sunk into compliancy costs, and limited ability to react quickly to changing market conditions. By replacing inefficient IT architecture and introducing systems better-designed to handle a constantly evolving regulatory landscape, the financial services can reduce operational costs and re-attribute resources to developing long-term growth strategies.”
The compliance burden is a new reality for the financial services sector, and if operating costs are to be kept at internationally competitive levels, a more focussed approach to managing the cost of compliance is required immediately.
