Banking industry executives must feel like they’re in for a roller-coaster ride on the regulatory front in 2020. The bar is locked down, the coaster is rolling out of the gate, and bankers should hold on tight as myriad twists and turns await them in an aggressive regulatory cycle this year.
The ride should be smooth, though. We know bankers are smart, and they’re preparing themselves for upheaval in 2020 – with a special focus on regulatory investment.
— More than 75% of banks are spending up to 20% of their budgets on regulatory compliance
— Most banks (nearly 75%) will spend up to 40% of their budget on compliance and cybersecurity
— 72% of bankers said they will spend up to 20% of their entire budget on cybersecurity
With a dynamic and highly fluid financial and regulatory 2020 already gaining steam, what issues concern bankers the most going forward?
In discussing key banking and finance regulatory issues with our clients, partners and industry analysts, these trends top the list.
Dealing with EPS – but no big surprises. With the U.S. Federal Reserve locking down the final enhanced, prudent standards rule, financial institutions now know what they’re dealing with Uncle Sam, EPS-wise. Banks, especially larger ones with assets over $50 billion, are likely already in the mandate’s planning or even rollout phase, especially in key areas like capital strategy in a post-EPS climate,
Banks may already be moving down the path laid out by the Fed, particularly in the areas of capital planning, bank stress testing, liquidity risk management, and institutional risk governance. The Federal Reserve has now laid out the framework for accommodating EPS – they’ve even provided a toolkit to get the job done right.
Banks would do well to adhere to that framework, particularly foreign banking organizations (FBO’s) that can expect new layers of regulations going forward under the enhanced prudential standards rule.
RegTech here – to stay. 2019 was a year when RegTech was in ascendency and it’s cresting at the beginning of 2020. Industry data points to a significant upsurge in RegTech investment in 2020, as well. That investment could rise by as much as 500%, from $10.6 three years ago to $53 billion in 2020.
Consequently, as the year picks up in momentum, expect bank decision-makers to start shifting out of the “pilot” program phase and accelerate into the innovation stage.
That’s only natural, as financial institutions had to take a step back while RegTech firms went through the obligatory “wheat from chaff” phase as the survivors move forward and the victims fell by the wayside.
Now that bank directors know who the RegTech providers’ players are, and that they’re here for the long haul, they can start rolling out programs that leverage technology tools. Look for them to do so in key areas like regulatory reporting, identity management and control, and risk management and compliance.
One critical issue for banks to consider – should they partner, purchase or plow through a RegTech process on their own this year? With the RegTech industry stabilizing, that decision should be easier to make.
A more aggressive regulatory agency environment. Bank compliance officers should steel themselves for a tougher, more aggressive regulatory enforcement landscape in 2020. The good news? We’re hearing they’re more than ready to handle it.
As usual, the numbers tell the story. In 2019, the U.S. Security and Exchange Commission levied a staggering 2,750 enforcement actions, with 95 of them landing on the doorstep of publicly-traded companies. Meanwhile, the U.K.’s Financial Conduct Authority (FCA) issued recorded its biggest amount of fines and generated 160 enforcement actions in 2019.
With the compliance environment so fluid and financial institutions trying to keep pace (but not always doing so), expect an equally aggressive government regulatory landscape in 2020.
AI becomes more pervasive. Government regulators are growing more comfortable about new technologies entering the finance and banking space. Even as regulators harbor deep concerns over Facebook and its new Libra cryptocurrency project overwhelming financial markets, for example, they’re more likely than ever to green-light banks using new technologies, like artificial intelligence and robotics as a means to sharpen their data compliance efforts.
This is not a “hands-off” policy by any means. Bank regulators will still poke and prod financial institutions over how they’re using AI and other new, data-based technology tools. That said, the door is open in 2020, and banks would do well to become transparent with compliance officials about how they’re using new technologies – or risk being called on the carpet if they don’t oblige.
Regulatory agencies increasingly embrace new technologies, as well. It’s not just banks and other financial companies that are turning to new technology tools.
Regulatory agencies, too, are on the hunt for more focused, accurate and thorough data collection and analysis options, and new technologies like AI and the cloud, while edging away from increasingly archaic legacy systems.
The new goal in RegTech for global financial regulators is to know when trouble is coming before it hits in areas like cybersecurity, 5G network technology, robotic process automation, and risk management.
Legacy systems weren’t up to that task, so look for a major technology upgrade for regulators in 2020, as governments expand budgets for financial compliance oversight, shifting tech priorities away from maintaining legacy systems and investing in new, more data-focused compliance management systems.
Regulatory Picture Comes Into Focus
Add it all up, and it’s a safe bet that the above five areas of regulatory focus are already on the minds of banking and finance industry compliance officers. With new technology tools in their back pocket, a clearer playing field in RegTech, and stabilization on the regulatory rules front, financial institutions may not only survive a regulatory roller coaster this year.
Asif Alam is the Chief Executive Officer at Compliance.ai. A leader in shaping disruptive technology, his experience includes building products using AI and natural language processing for GRC, payments, lending, risk, trading, and new solutions, from Fortune 500 companies to startups.
In his most recent role, he served as the Chief Strategy Officer of ThoughtTrace, unlocking new revenue streams and markets, and reignite portfolio growth. ThoughTrace was then acquired by Thomson Reuters in 2021.
He brings more than 20 years of management and business experience; increasing profitability, unlocking new revenue streams and markets, and reignite portfolio growth for companies like Thomson Reuters, Crux Informatics, and Finastra. Asif is a forward-thinking expert driving engagement via client forums, public presentations, and white papers.
Cesar Lee is a Principal at WRV, a venture capital fund focused on early-stage investments in hardware, semiconductor, and other technology-related companies. Previously, he was an investment professional at Riverwood Capital, a technology-focused, late-stage venture capital, and private equity fund. He began his career at RBC Capital Markets, where he was part of the Mergers & Acquisitions group for two years and the Equity-linked & Derivatives group for one year. While at RBC, Cesar spent a majority of his time working on M&A advisory transactions for technology companies.
Cesar’s investment experience includes buyouts, later stage, early stage and seed rounds. Cesar has completed transaction in the U.S., Latin America, and Asia, and in technology sectors including data centers, software, semiconductors, consumer electronics, robotics, big data, and internet.
Maria Devassy is a RegTech, Content, and Technology leader with over 20 years of experience helping companies bridge the gap between technology, product, and business. Maria has held leadership positions with MetricStream, KPMG, Oracle Corporation, and other technology companies. She has launched several successful RegTech products, business partnerships, and advised Fortune 100 clients on risk management, audit, advisory, and compliance business across Industries.
Hugh Cadden is a recognized expert in derivative financial and trading markets including futures, options, and swaps. Hugh is currently a senior consultant and expert with OnPoint Analytics, Inc. an economic, finance and statistical consultancy specializing in expert testimony for complex litigation. He has been specializing in the organization, operation, and regulation of financial and trading markets for over 40 years. Hugh’s experience includes both the public and private sectors and he has held senior level positions with the U.S. Commodity Futures Trading Commission including serving as Director of the Division of Trading and Markets and Deputy Director of Enforcement. He has been qualified as an expert on financial and trading market matters before the Commodity Futures Trading Commission, the Securities and Exchange Commission, the U.S. Tax Court, Financial Industry Regulatory Authority, National Futures Association, American Arbitration Association and federal courts.
Drake Ross is a former bank regulator who specialized in compliance with consumer protection regulations while at the OCC, FDIC, and OTS. While at these agencies, he provided extensive training and guidance and developed materials to ensure full comprehension and proper application of rules, laws, policies, and guidance, and served as a Subject Matter Expert in numerous areas. Because of his expertise, he often presented at agency and industry events. He also played a significant role in successful windup of the 2008 IndyMac Bank failure, where because of his extensive knowledge of the FDIC deposit insurance regulations, he was called upon to administer highly-complex insurance determinations.
Carliss Chatman is an Assistant Professor of Law teaching Contracts, Agency and Unincorporated Entities, Corporations, and Transactional Skills. Her work is influenced by over two decades of service on non-profit boards and involvement with community organizations. Through leadership positions, she has developed expertise in corporate governance and non-profit regulation. She has also been instrumental in strategic planning and fundraising efforts. Prior to law teaching, Professor Chatman was a commercial litigation attorney in Houston, Texas. In practice, she focused on trial law, appeals and arbitration in pharmaceutical, health care, mass torts, product liability, as well as oil, gas, and mineral law. In addition to negotiating settlements and obtaining successful verdicts, Professor Chatman has also analyzed and drafted position statements regarding the constitutionality of statutes and the impact of statutory revisions for presentation to the Texas Legislature.
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Mariam is an Operating Principal at Cota Capital. Mariam has experience providing guidance on strategic and operational planning to Venture and Growth stage companies. Prior to Cota Capital, Mariam spent her career in management consulting as a Director at KPMG. She has experience leading global transformation programs and developing innovative service offerings for Fortune 500 companies in the Technology sector. Mariam has an MBA from UCLA’s Anderson school of management with an emphasis in Finance and Entrepreneurship. She has a Bachelors in Science in Finance and a Bachelors in Science in Economics from Santa Clara University.
Chris Callison-Burch is an Associate Professor in Computer and Information Science Department at the University of Pennsylvania. His research interests include natural language understanding and crowdsourcing. He has served the Association for Computational Linguistics as the General Chair for the ACL 2017 conference, as an action editor for the Transactions of the ACL, as an editorial board member for the Computational Linguistics journal, and an officer for NAACL (the North American chapter of the ACL) and for SIGDAT (the special interest group for linguistic data and corpus-based approaches to natural language processing)
Tom Ladt is an experienced executive and investor. Tom has lead and served on the boards of several public and private companies serving highly regulated industries such as technology, healthcare, real estate, and food processing. Tom has also served in key governmental roles and on numerous community boards.
Jeroen Plink is a global executive with a proven track record of developing and growing businesses, teams, and technologies with innovation and passion. Jeroen was CEO of Practical Law US during its acquisition by Thomson Reuters. He now serves on numerous boards and acts as a strategic consultants for start-ups.
Global Legal and Compliance executive with 15+ years of success in the SaaS technology and financial services industries. Partner to the CEO and executive team in corporate transactions, business development, product expansion, and regulatory navigation during periods of intense growth and organizational change. An advocate of effective risk management that starts with sound business practices and putting the customer first.
Richard Dupree has held multiple Risk, Compliance and Operations positions at regional, national, and global financial services firms including Wells Fargo, Silicon Valley Bank, Bank of the West and BNP Paribas. Rick currently advises FinTechs and RegTechs and sits on industry panels, contributes to industry whitepapers, thought leadership efforts, and speaks at industry seminars on Risk and Compliance challenges faced by banks and FinTechs.
Brian advises clients on legal and regulatory compliance in the financial, tech, and procurement sectors. His passion is helping businesses succeed in heavily regulated environments. As counsel and trusted advisor to businesses of all sizes, and as a former regulator, policymaker, and federal official, Brian acutely understands the unintended burdens that even well-intentioned government requirements can put on innovation and business growth, as well as how to create policies that strike the right balance.
Brian served as National Ombudsman in the Obama Administration, leading the federal Office of Regulatory Enforcement Fairness in assisting hundreds of startups, entrepreneurs, and small business owners in every industry and every state.
Dr. Marsha Ershaghi Hames is Managing Director of Strategy & Development at LRN, a leader in advising and educating organizations about ethics and regulatory compliance, as well as corporate culture, governance and leadership. With the focus of inspired behavior versus required behavior, LRN is a leading voice in the industry for companies to build ethical cultures instead of “check-the-box” compliance approaches. She’s advised Department of Justice corporate monitors on successful program transformation under CIAs (Corporate Integrity Agreements. With over 20 years of experience in leading multinational ethics and compliance strategies, Marsha has become a highly sought-after thought leader on leading Corporate Compliance and Ethics practices.
Carla Carriveau is currently the Senior Managing Counsel at Wealthfront, an automatic investment service firm in Redwood City, California. Carla was previously Senior Counsel, Division of Trading and Markets, at the United States Securities and Exchange Commission. As a former regulator with over 15 years of experience in helping small businesses navigate legal and regulatory needs in the financial services sector, Carla advises Compliance.ai on financial services regulation, the regulatory landscape and industry practices.
