Tighter financial regulations distracting executives

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Nompumelelo Magwaza

Senior financial executives are losing sleep over the issue of new and rapid regulatory changes as compliance distracts them from their core business activity and hinders their companies’ growth.

This is according to the Regulatory Pressure Cooker survey, which polled 400 senior financial executives across the globe. The study was commissioned by SunGard and conducted by Longitude Research late last year.

About 30 senior financial executives from South Africa participated in the study.

Almost half of all respondents described themselves as “highly stressed” with the current pressure of regulatory change, with little prospect of imminent improvement.

The survey lists a number of reforms that have been introduced, with more in the pipeline. These include the Basel 2 global reform of bank capital and supervision rules and the US’s Foreign Account Tax Compliance Act (Fatca).

Fatca requires foreign institutions to report details of US citizens’ assets to the Internal Revenue Service no matter where they are held.

Among reforms still to come are the Solvency 2 Directive, an EU reform intended to harmonise insurance regulation, and the Basel 3 banking rules.

Brian Anderson, the head of business development for Africa at SunGard, said that these reforms would affect all financial institutions globally.

“While all these reforms are international, every country will be looking to align itself with these international standards,” Anderson said.

He said South Africa’s financial institutions operated on the global stage and would need to be compliant with these rules, especially if they wished to be taken seriously by their counterparts and trading partners internationally.

The report shows that regulatory changes are among the five biggest concerns in most of the major financial markets.

“Regulatory change is second only to market volatility as the most pressing issue for financial services organisations over the coming two years,” the report says.

Adapting to new regulations is also causing financial services firms to rethink their approach to compliance and restructure their organisation accordingly.

Another key finding is that dealing with tighter regulatory requirements demands attention at all levels of the business, potentially disrupting performances.

Anderson said local large banks were compliant with Basel 2, however they might face challenges with Basel 3 execution.

“Under Basel 3 there will be a more rigid definitions of what is classified as liquid assets,” Anderson added.

Basel 3 would be more about getting down to the granularity of this information and the risk positions associated with it.

About 59.8 percent of the respondents have increased staffing in compliance and other relevant areas in the past two years and lifted spending on consultancy services.

Anderson said all the South African institutions were trying to be as advanced as possible and tapping international and local consultants to find compliance solutions.


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