In the wake of the financial crisis, policymakers and regulators have embarked on changes in global financial regulation on a scale not seen in decades as they aim to improve the safety and soundness of the financial system.
Finance is entering a new age of re-regulation that presents a core challenge for bank governance: figuring out how business models will need to change in response. Changes include new and changing regulatory structures, increasing focus on macroprudential risk, new capital, liquidity and leverage requirements, increasingly intensive and intrusive microprudential supervision, and increasing consumer protection regulations.
Local regulators are focused on avoiding the need for government bailouts of systemically important financial institutions, resulting in increased attention on local entity governance, ring-fencing of capital and operations, and subsidiarization. New regulatory bodies are being formed and international regulators are increasing coordination. Still, individual countries are moving at different paces and may enact different standards, resulting in an unlevel playing field.
Bank boards must understand the implications of emerging regulatory changes and help management get ahead of them as they consider emerging strategic risks and opportunities.
A sustained dialogue among executives, independent directors, and regulators can help identify the right balance between the need for safety and the need for a robust financial system that is free to take risk to support economic growth, so long as it is prudently managed and supervised.
Privacy and data governance: risks and opportunities for leading insurers
Competitive pressures are driving insurers to seek the greatest possible advantage from the large amounts of data at their disposal. At the same time, security and privacy concerns are limiting their ability to do so. Regulation and customer expectations are elevating standards for privacy and data governance, and insurers need to develop systems, personnel, and governance policies to meet these higher standards. Yet even while they face greater constraints in how customer information can be deployed, insurers are using big data to improve underwriting, risk management, operating efficiency, customer relations, and product innovation. This ViewPoints synthesizes views among insurance leaders about how best to manage the manage the tug-of-war between deriving strategic value from data and safeguarding consumers’ rights.
The paradox of unity and division: an unprecedented political landscape leads to high policy uncertainty
In the US, the Republican Party now controls the presidency and both houses of Congress for the first time in a decade. This may clear the way for a more pro-business policy agenda; however, populist and anti-business sentiment remains strong and, to date, President Trump has proven to be a highly unconventional leader. A participant summarized, “Whatever rulebook you thought this all played by is going into the shredder. Plan for unexpected events and curveballs.” In this ViewPoints, leading insurers exchange views on the changing US political landscape and the potential effects on US commercial markets and the insurance sector.
Revolutionary change is transforming the financial services landscape
In October 2016, Tapestry Networks and EY hosted the Financial Services Leadership Summit, which brought together more than 80 financial sector leaders to discuss the extraordinary changes happening across the financial services landscape. Participants included directors and executives of the largest global banks, insurers, asset managers, regulators, fintech entrepreneurs, and other subject matter experts. ViewPoints synthesizes these and other discussions with participants in the Bank and Insurance Governance Leadership Networks over the second half of 2016. Technology is lowering the barriers to entry for emerging competitors and transforming the way incumbents do business, rapidly altering the competitive marketplace. At the same time, unprecedented macroeconomic and geopolitical conditions, driven by underlying structural changes, are creating a degree of uncertainty about the environment through which leaders must guide these institutions. Regulation will need to continue to evolve in response. A summit participant summarized, “Revolutions only get called with hindsight … We are in a period of accelerated evolution that will be called a revolution in financial services.”
Changing regulatory capital regimes: implications and market reactions
Despite years of regulatory reform, insurers now face another wave of new requirements. The European Union’s Solvency II has just come into force, and the International Association of Insurance Supervisors, anticipates completion of the International Capital Standard and additional systemically important insurer requirements by 2020.In this ViewPoints, leading insurers share perspectives on how these regimes may operate or require adjustment in the future, as well as how shareholders and markets may interpret and react to new solvency metrics.
The future of banking in Europe: regulation, supervision, and a changing competitive landscape
All large banks continue to face political, regulatory, and market pressure. European banks face particularly daunting challenges. As Europe pushes for a banking union, the ECB’s role as a single regulator and supervisor for the Eurozone becomes an important player in the transformation of European banking. Having completed its first year, it wants to establish itself as a strong regulator and ensure the stability of the European banking system. At the same time, many European banks are faced with the need to fundamentally address their business models in the context of a broader policy debate about what banking structures will best support European economic growth.
Sustaining growth and innovation in the insurance sector
The insurance sector faces one of its most difficult periods in recent memory. Economic, regulatory, technological, structural and shareholder challenges are driving insurers to redesign many aspects of the business and key elements of strategy.In this ViewPoints,leading insurers share perspectives on the outlook for the sector, opportunities in asset management governance, and new models for growth and innovation.Insurers, together with leading banks, also explore broader challenges facing financial services, including market liquidity risks and the need for increasing board-shareholder engagement.
Creating a common language for regulating global insurers
Though the post-crisis reform agenda has been underway for many years, insurance supervisors have yet to create a truly common and international language through which to understand complex insurers’ vast operations. Many see global capital standards and recovery and resolution planning as essential elements of this common language. However, making progress on these standards will require addressing significant tensions within existing regulatory frameworks, and meaningful consensus within, and across, the public and private sectors.
Much more prudential reform to come
Banking reform is just beginning to address some of its most difficult questions – how to ensure minimum capital and liquidity levels are truly consistent across borders, and resolution of cross-border institutions is plausible. While the general direction and intentions of prudential regulatory reform are clear, debate continues as to whether the endgame is sufficiently clear. Summit participants concluded that banks should expect regulatory uncertainty for quite a few years to come.
The future of cross-border supervision in Europe: practical and political challenges in establishing a European banking union
The recent introduction of the European banking union aims to improve cross-border supervision of large global banks, but presents challenges for both banks and regulators inside and outside the EU. In March 2013, BGLN participants met to discuss these challenges, concluding: though improved, cross-border supervision is far from optimal; a European Single Supervisory Mechanism (SSM) is coming, but key questions remain; the SSM can only work if other building blocks are in place; and, the debate on the banking union is a microcosm of the debate on European integration and power shifts.
Bank boards must plan for ‘radical change’ to their business models
Nearly five years on from the financial crisis, banks continue to face political and regulatory pressure, macroeconomic uncertainty, and rapidly changing competitive environment. Increasingly, banks are beginning to address core strategic questions. This ViewPoints outlines the discussions on evolving business models from the fourth Bank Directors Summit, including how regulatory and supervisory initiatives are transforming the "rules of the game" for banks, the potential for "radical" change to business models, and the need for boards to start driving banks' long-term strategy.
Increasing clarity in the global regulatory agenda: focusing on implementation and implications
At the fourth Bank Directors Summit, participants recognized the need to stop waiting for the pendulum to swing back and accepted some 'hard truths' about the regulatory environment banks will face in the next decade. This ViewPoints covers this new regulatory reality, including increasingly clarity that: global regulators are working towards minimum standards, not a level playing field; national approaches to regulation are challenging global banking operations; and regulators are intensifying supervision, particularly for banks designated systemically important.
Defining supervisory intensity in practice
Supervisors are identifying ways to implement "enhanced" or "intensive" supervision. BGLN participants shared perspectives regarding how these approaches are being implemented, how supervisors determine the appropriate level and focus of intensity for individual banks, and the degree to which supervisors may choose to more directly influence strategic decisions. A number of questions remain regarding international supervision of global banks and building supervisory capacity to fulfill expanded objectives.