Need for certainty in the regulatory system

Speaking at the PwC/Irish Banking Federation Breakfast Briefing on the Regulatory system and future reform, Garvan O'Neill, Head of Financial Services Regulatory Advisory Services, PwC said:

"There is a huge need for certainty and confidence in the regulatory system at international levels to be restored. Much of this will be driven by European and global actions and the standardisation of the regulatory framework. With this is the need for greater transparency, particularly regarding financial products in the market place. As the financial system at international levels deleverages we will see a much simpler form of banking and we expect to see a similar trend in Ireland. In this environment, Ireland needs to work on redeveloping a prosperous, robust growth model economy that will help us on the road to recovery. To facilitate such redevelopment in the banking sector, there are some fundamental changes that international observers have recommended for all regulatory systems, including the Irish system, which need to happen. These include (i) a resourcing up by Regulators in general; (ii) Regulators needing to offer competitive remuneration packages and comprehensive personnel career policies; and (iii) creating greater interplay of resources between Regulators, the industry and the professions.

In the context of the significant structural changes that have happened or are likely to happen in the banking sector, there is a significant potential opportunity for Ireland to be identified as a centre of excellence for financial institutions where banks can locate their head offices. Ireland has the infrastructure to make this happen, due to the level of financial services related skills, the availability of qualified individuals, an English speaking jurisdiction, a well developed and sophisticated professional support infrastructure, and an attractive local tax and double taxation agreement environment. This in turn creates a pro-business environment and it is time to capitalise on these advantages.

In summary, Ireland needs to be smart and position itself for the future so that the financial services industry can continue to blossom in this attractive environment. We have an opportunity to apply the regulations coming down the track to best advantage to make this happen."

Below is some detail on a number of actions that credit institutions should be considering in preparation for the changing regulatory landscape that is likely to unfold:

  1. Enhanced Governance Arrangements: The key here for credit institutions is not only to ensure the adequacy and effectiveness of their governance arrangements but also to address the transparency, capability, challenge and accountability requirements that apply to those arrangements.
  2. Enhanced Risk Management Practices: The role and seniority of the CRO needs to be enhanced and risk management going forward has to be transparently embedded in the organisation and must permeate all aspects of the business, rather than operating as a silo function. Understanding and awareness of risk must be heightened across the organisation.
  3. Increased focus on Capital and Liquidity: The scrutiny on capital adequacy and liquidity management within credit institutions is increasing from both regulators and the market. Higher capital requirements and more prescriptive liquidity arrangements are coming down the track and deleveraging across the sector continues. Firms need to anticipate these changes and reflect their impact through changes to their strategic plans. Increased capital requirements may create opportunities for Ireland as it has, and continues to represent, an attractive location for organisations operating on a cross-border basis, for those reasons cited above. International mergers in the banking sector will have created some level of capital inefficiencies that Ireland could leverage should it present the above positive characteristics with a strong regulatory framework. Ireland should be looking to facilitate new corporate structures that provide capital efficiencies for credit institutions within a leading governance, risk management and compliance environment.
  4. Resource and cost pressures: In an environment where regulatory and risk knowledge is in high demand competition for skilled resources will intensify. How to address the increasing demands for such resources is going to be a key challenge for credit institutions, particularly in a cost-constrained environment. Relatedly, firms need to assess how they can ‘spend to save’ where investment in areas such as more robust risk management can actually reduce cost inefficiencies in meeting the new regulatory challenges.

About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com/ie) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 155,000 people in 153 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

"PricewaterhouseCoopers" refers to PricewaterhouseCoopers or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.