Financial regulation is essential for protecting the banking industry and consumers. Since the financial crisis, regulation has played an even greater role in financial services, leading to increased scrutiny of banks and the way they operate. This has put them under increased pressure and it is essential that they can prove that they are adhering to regulatory rules. Increased regulation typically leads to a bigger workload for those working in banking and it can stifle innovation by driving up the cost of doing business as usual. The more resources that are being put into simply complying with regulations, the less there is available for discretionary spending that could be used to innovate.
Not only are banks under scrutiny from the Financial Conduct Authority (FCA), there is also increased political and media attention as the public has become more critical of banks than ever before. This is not only due to the lack of confidence brought about by the financial crisis but also because of higher customer expectations due to technological innovation. Consumers are used to getting results quickly and easily from other industries and are starting to expect the same from their banks.
As rapid innovation takes place in finance, regulation needs to keep pace and innovate too. It is important for banks to stay technologically relevant to retain their competitive edge, but also to remain compliant. Banks are in the business of managing risk, but regulators must police this and ensure that these risks are measured and responsible. Financial institutions face significant fines and damage to their reputation if something they do has a negative impact on the market, their employees or their customers.
While new technologies can help to mitigate risks, adopting new technologies, for example, a new payments system, could also lead to increased vulnerability to risks such as cyber attacks. While unsuitable legacy systems can come with the risk of failure, transferring to a new system also carries significant risks which may not be fully understood, as vulnerabilities in the system may not be identified until during or after the transition. Banks must make careful decisions around innovation to remain competitive within a compliant framework.
Though regulation may be seen to inhibit growth, the growing RegTech industry seeks to innovate regulation and encourage innovation in finance. By funding startup incubators and creating sandbox environments, many regulatory bodies seek to balance risks while also encouraging innovation. Far from wanting to prevent business growth, regulators are keen to find innovative ways of regulating banks while working in conjunction with them.
When executing critical events, banks must be even warier of conduct risk. A problem with the execution of a new system could negatively impact the market, customers and employees. For example, if employees at a branch are put in a difficult position because they are unable to serve their customers due to a failed event, the bank would be liable. If there is a problem during an implementation, the bank also needs to prove that integrity was maintained throughout the decision-making process at that time. For this reason, it is important that those working on the implementation take care to keep accurate records, which can be challenging in the midst of a critical event. Post-event, they must reconstruct the event for regulators to demonstrate that they have adhered to regulations. This can be difficult when reconstructing from phone records, emails and the memories of those involved. This system leaves key individuals open to personal risk and liability for mistakes if certain pieces of information cannot be verified.
Using Cutover mitigates regulatory risk
Cutover makes the work related to regulatory compliance easier and removes much of the burden of proof from individuals, as it automatically keeps a record of everything that happens during a critical event. The Audit Log shows every action, decision, handover and implementation that occurred during the event, who was involved and when those things happened compared to when they were planned for. This removes the need for the laborious piecing together of the event after the fact, reducing cost and time and dramatically improving accuracy. Using new innovative tools such as Cutover to update their internal systems and processes can help banks to reduce all kinds of risk related to critical IT change events.