Regulatory Trends in 2023: Shaping the Financial Industry

Compliance remains at the top of many financial services firms’ priorities, as new regulations continue to emerge at an ever-increasing pace. Firms must allocate sufficient resources to meeting all their risk and compliance obligations.

Banks and credit unions have traditionally been the main providers of financial services; however, nontraditional entrants that provide better customer experiences and technological capabilities are increasingly offering alternative financial products and services.

Cyber Risk

Digitization has rendered the financial system increasingly vulnerable to cyberattacks and increased systemic risk. Understanding their unique characteristics is crucial as capital and liquidity may not mitigate system-level losses in the same manner they would for financial stability issues arising from solvency runs or other disruptions to real economies.

Compliance has also been affected by the expanding regulatory environment, becoming more data driven than ever and demanding specialist talent to meet rising demands. This trend will have serious ramifications on hiring practices at firms as well as result in changes within compliance departments that emphasize technology’s role.

Digital asset regulation is another key issue for the industry, requiring a new regulatory framework to oversee cryptocurrency markets that present numerous risks not addressed by existing rules. Who will decide how these markets are regulated is unknown as are their repercussions for investors and financial firms.

Regulatory Tech

After the financial crisis, banking institutions came under unprecedented scrutiny to rebuild trust among their constituents and meet ever more stringent regulations. Accomplishing this feat can be both challenging and expensive, yet solutions such as RegTech provide solutions which can enhance compliance processes while decreasing risks and costs.

As fines for failing to comply with regulatory requirements grow, the need for RegTech solutions will only become greater. According to CB Insights, US banking and finance firms have paid over USD 321 billion in fines since the GFC, with Australia soon following suit.

As such, we should expect an increase in investments into tech-focused areas like data-mining. EQS Group is developing a software platform that automates reporting processes for banks so they can submit regulatory reports more easily and quickly – while also increasing accuracy and consistency in reporting processes while helping reduce internal resources burden and external auditors’ responsibilities.

Customer Experience

Financial services firms face an uncertain operating environment and economy, so customer experience has become ever more crucial for success. Neobanks such as SoFi, Ally Bank, Varo Bank and Marcus by Goldman Sachs demonstrate this trend by providing personalized services with greater access to banks on terms that fit individual consumers.

Regulatory reporting will continue to be a top priority as industry work toward harmonizing data following the launch of EMIR REFIT on 29 April 2024, as well as other global rule changes anticipated throughout 2024. Market participants must cooperate together in order to provide all parties access to consistent information that reduces manual processes and costly internal audits.

Open banking regulations outside the US will continue to gain in prominence as they allow third-party access to legacy institutions’ application programming interfaces and financial data infrastructures for white label products or services development. This trend could present financial services firms with an opportunity to strengthen customer relationships while remaining compliant with applicable regulations.

Compliance

Financial industries face numerous federal, state and local laws, regulations and guidelines to abide by; compliance challenges arise regularly as banks strive to meet them all. Even when their compliance house seems in order, another change occurs which necessitates testing and reporting procedures.

One such issue is data localization. Countries like Turkey, China and Russia have taken strong stances regarding data storage requirements within their borders – penalty fees for violations can reach billions.

Strategic teams can leverage their combined talents to ensure compliance is integrated seamlessly into customer journeys without being disruptive or frustrating for users. Furthermore, strategic teams can collaborate with risk and compliance teams in designing an integrated system allowing strategy and compliance teams to share analyses and assessments more easily, saving both parties valuable time spent reconciling data or duplicating analyses.