June 03, 2011

Despite uncertainty in the regulatory reform environment, financial executives are moving ahead with changes to their capital markets businesses, according to a new report commissioned by Capco, the global business and technology consultancy focused on the financial services industry.

The report, “Change Amidst Uncertainty: How Banks Are Adapting to the Emerging Regulatory Landscape,” written by The Economist Intelligence Unit, is based on a survey of 60 senior executives split between U.S. and U.K.-based financial institutions working in the areas of trading, risk, regulation and operations.

According to the report’s findings, nearly three quarters (73 percent) of trading executives said they are already at the implementation stage of making changes. By contrast, only 20 percent of those within the regulatory function said they are at the implementation stage, although 60 percent have completed an impact assessment. Executives in the operations function lead in “identifying the regulatory changes that impact the business,” with 46 percent stating that they have done so.

Among the key findings, many financial institutions see potential for opportunity as a result of regulatory change. Thirty-two percent of U.K. respondents strongly agree that the regulatory framework provides an opportunity to gain market share. US institutions are less optimistic, with 20 percent feeling strongly that change presents an opportunity for competitive edge, suggests the report. Traders were most optimistic, with 82 percent agreeing with the potential to gain market share.

The report found that financial institutions are seeking more information on counterparties. Transactional data was identified as the area where financial institutions need more detailed information with 54 percent identifying this area, followed closely by collateral at 53 percent.

Most financial institutions have a strategy in place for identifying where changes to data need to be made, or have already identified the systems, which need modification, according to the release. Respondents were undecided about whether regulations would require relocation or outsourcing of any business functions, or the need for a shared utility. In 13 of the 17 areas of operation, the majority of respondents said they did not know what the impact of regulation would be on organizational structure.

Another key finding is that financial institutions lack an overarching view of the impact of global regulations will have on the enterprise. The report highlights the concern among industry participants who believe that change at institutions is happening in a fragmented and siloed manner, according to the report summary.

“Institutions in both the U.S. and the U.K. are expecting clarifications from regulators, but even with the ambiguity over the final rules, firms are wisely moving ahead to prepare,” commented Sean Culbert, a Capco partner and co-lead of the Finance Risk & Compliance practice, in the release.

“However, the report does reveal that implementation is happening piecemeal through task forces working at a national level, and therefore not at the necessary global, enterprise-wide level,” Culbert added in the release. He said firms “need to be thinking critically about enterprise-wide solutions connected to strategy, customer and counterparty disruptions, structure and technology as a response to regulatory change is formed.”

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Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...