What are the new challenges of regulation that will present themselves in 2013?

Throughout 2012, there was a great deal of uncertainty in the financial services industry as organisations contended with huge fines and struggled to prove compliance with the latest initiatives. In total, the Financial Services Authority (FSA) issued £311.6m in fines against more than 50 firms in the space of one year, a 371 per cent increase on fines issued in 2011.

As authorities continue to introduce new measures designed to position financial services as an efficient and viable market for customers, organisations will be forced to face the challenges of data management and the need to monitor for the deliberate circumvention of controls. Jim Muir, director of AutoRek, looks at what factors will shape the financial services industry in 2013.

“More regulations dictated by Europe
As regulators carry on dealing with the consequences of the financial crisis and make changes to ensure a more controlled market for business, financial services will remain in a state of flux. Government regulators and policy makers are taking a much tougher line with businesses that fail to combat internal risks and the size of fines levied against financial institutions will continue to rise as more directives are dictated by European officials that seek to hold senior managers accountable for failing to implement best practice.

Just last week, the EU proposed new rules which will mean that banks may face fines as high as 10 per cent of their annual revenue if they fail to combat money laundering and terrorist financing with companies. According to a draft of the latest proposals, organisations, such as banks and law firms, are being forced to carry out checks on their customers if they carry out transactions worth at least 7,500 euros.

Focus on information management
The latest EU proposals are part of a greater focus that the industry is placing on how to avoid fundamental failings surrounding operational supervision, audit supervision and breaches of authority. Companies are beginning to recognise that the failings of the financial industry are relatively straightforward to fix by introducing automated controls which improve management practices. As a result, firms are now gearing up to implement new controls, rules and processes that prove compliance with new regulation by prioritising system investment to enhance information management and improve business processes.

Introduction of control frameworks
Moving into 2013, we anticipate that there will be a heightened focus on holding those that neglect to institute simple financial controls accountable. Measures such as reconciliations, record keeping and the segregation of duties form the basis of control frameworks that can help identify any anomalies and ensure that suspicious activities are escalated and resolved in a timely manner. In addition, by bringing together different feeds from legacy systems, there will be a real opportunity for financial institutions to optimise systems and generate a single view of customers. In a competitive economic environment, it will become imperative for organisations to gain a better understanding of their customers and how they are using business services. Only then is it possible to understand customer needs and develop a proposition that ensures firms are delivering the right level of service and contact at all times.

Putting the customer first
In today’s competitive economic environment, organisations need to develop a proposition that ensures they are delivering the right level of service and contact to customers at all times. Following the lack of care and attention in previous years, new entrants will emerge that aim to capitalise on a customer-centric approach within the financial services space. However, the vast majority of new brands may not have the market awareness, or scale, to cause large movements in customer attrition and will therefore fail to have a significant impact on the competitor landscape.

New entrants will emerge in the market
Finally, confidence in the market is low and old brands have been damaged by scandals from the past year. As a result, we are likely to see new entrants emerge that develop a customer-centric approach to capitalise on the seeming lack of care and attention that the old brigade has shown. Despite this the vast majority of new brands will not have the market appeal, or scale, to cause large movements in customer attrition and therefore will fail to have a significant impact on the competitor landscape. It’s almost certain that these new entrants will turn to business process outsourcing (BPO) providers that manage certain business functions, potentially risking the creation of a fragmented customer experience but a standard service offering to the marketplace, neither of which is likely to result in greater customer satisfaction and confidence.

Ultimately the number of high-profile scandals that have rocked the financial services industry over the last year, means we are now witnessing a new regulatory drive that forces firms to protect themselves against operational risks. With the FSA and other regulators finally getting tough on bad practice, organisations need to start preparing their systems and processes to prove that they have done their due diligence in meeting the latest regulations.”