Ed Royan, COO, EMEA at AxiomSL looks at how regulation will impact private banking in 2017
The need to comply with new and incoming regulations and standards has been a big priority for many private banks this year. Looking forward to 2017, we expect that focus to intensify as the implementation date of several pieces of forthcoming legislation draws nearer.
A main priority for many private banks will be the Markets in Financial Instruments Directive II (MiFID II), which will come into action in January 2018, meaning that at the beginning of 2017 private banks will have just one year left to prepare for one of the most onerous aspects of the new regulation – the reporting obligations.
This new regulation will mean that firms will be required to report (near) real-time notifications of trading activity with basic information about individual trades, after which they will be required to follow up with more comprehensive transaction reports, which must be submitted to an approved data collection mechanism on a T+1 basis.
For this to be achievable, all of this data will need to be collected from the different trading systems that a private bank uses and then be combined with additional market and personnel data. The issue here is that data from different sources is likely to be maintained in different formats and subject to different quality controls. Private banks therefore need a regulatory reporting tool with strong data integration functionality, which can collect all of the necessary data and ensure it conforms to the same high standard of data quality.
In addition to MiFID II, we anticipate that in 2017 there will be a focus on the International Financial Reporting Standard 9 (IFRS 9), new accounting rules which are coming into force in January 2018. The aim of these rules is to address the shortcomings of the incumbent IAS 39 standard to properly disclose mounting risks, as uncovered after the financial crisis. Private banks are facing a major challenge to source and integrate the disparate data required as most of it will come from risk and finance – two functions that have historically operated in isolation from one another and apply different standards to the data they use.
Basel reforms are going to be another big theme in 2017, a part of which will be the rewriting of rules by the Bank of International Settlements (BIS) on how much capital banks must hold in order to mitigate their exposure to different types of risk. Some of the changes are so significant that, even though they are part of Basel III, they are already being referred to as Basel IV.
A final significant regulatory topic for private banks in 2017 will be the Fundamental Review of the Trading Book (FRTB), due for implementation in January 2019, which is expected to completely overhaul the way banks calculate their market risk and capital requirements. From what we are hearing in the marketplace, most private banks still have a lot of work to do to prepare for these incoming changes.
In short, we believe that 2017 for private banks will be a significant year of preparation and reconfiguration of internal processes and systems to ensure they are ready for the onslaught of significant rules and regulations in early 2018.