Regulatory driven transformation

The financial sector has been subject to many profound changes in recent years. Financial service providers can hardly keep up with the latest developments. There are two main reasons for these changes. The first is the interest rate environment. The interest margin is the most important source of income for many financial institutions. Low interest rates are therefore putting enormous pressure on the earning models of financial institutions. As a result, the investment budget needed to implement innovation also decreases.

A second important driving force behind the changes within the financial sector is the recent proliferation of new technologies. First and foremost, these technological developments are causing customer expectations to change significantly. Digitalization is changing the way consumers buy financial products and, as a result, customers want to be helped faster, more efficiently and more individually.

There are also new, non-traditional competitors, who are suddenly much closer to certain target groups of traditional financial service providers due to the emergence of groundbreaking technology. For example, the introduction of PSD2 laid the first building blocks for "Open Banking". This means that third parties can gain access to the customer data and infrastructure of financial institutions.

The speed at which these new players can operate often contrasts sharply with the lack of agility of many traditional players, who, on the whole, are still dependent on highly outdated IT systems.

However, in addition to these two megatrends, there is a third factor of complexity within the financial sector, namely the regulatory framework within which financial institutions operate. By constantly interacting with the underlying trends, regulation makes it much more challenging for financial institutions to efficiently manage strategic change.

"The interweaving of an increasingly extensive regulatory environment with the effects of the interest rate environment and technological development has indeed led to an exponential increase in overall complexity and volatility. This combination of complexity and volatility is putting great pressure on financial institutions to find the most efficient, risk-weighted and customer-friendly ways to achieve regulatory compliance.  Our "Regulatory-driven Transformation" approach was developed with exactly that goal in mind," explains Filip Weynants, partner at KPMG and responsible for the KPMG Regulatory Compliance & Transformation Team.

Regulation is an inevitable challenge for financial service providers, and for some even a necessary evil.  However, KPMG sees it as an opportunity to facilitate a complete transformation. "Creating a holistic view of regulatory change can help to understand it as a real driver for transformation. In this highly regulated and constantly changing environment, tomorrow's leaders are those who see regulatory change as an opportunity, not a constraint," Weynants emphasizes.

KPMG's Regulatory-driven Transformation solution is designed to help organizations better manage regulatory change. It used to be enough to know the regulations well. Nowadays, a good knowledge of regulations is only the bare minimum. Due to the increased complexity, it has become almost impossible to tackle a regulatory problem from one perspective alone. Using a holistic approach, KPMG helps solve this with its multidisciplinary 'Regulatory-driven Transformation' solution, an overarching layer that is fundamentally needed for successful transformation.

Successful transformation within the financial sector includes cultural change, rapid and complete adoption of new technologies and IT infrastructure, and a clearly defined data policy. KPMG has built a multidisciplinary team to support financial service providers throughout their transformation journey, powerfully combining industry specialists in banking, insurance and asset management, together with strong technical profiles with expertise in data science, intelligent automation and change management.

Filip Weynants quotes: "KPMG acts as the ‘middleman’ for all stakeholders in a financial institution. In this way, we not only ensure that all possible derivative effects of new regulations are mapped out, but also that the skills of all these stakeholders are brought in to arrive at the right, balanced solution. From the start of the transformation process, we manage operational and cost efficiency. In this way, KPMG forms a unique point of contact to steer your transformation in the right direction. Through the combination of sector expertise, technical skills and soft skills, we can efficiently create value for your organization".

Regulatory driven transformation supports your organization in making strategic choices. Making the right choices starts with a thorough knowledge of your data. Today, technological developments and data make it possible to optimize processes, to comply with relevant regulations faster and more efficiently, and to improve the relationship with customers.

"We find a good example where thorough knowledge of data really makes a difference in an Anti-Money Laundering (AML) context," says Weynants. AML aims to detect and prevent money laundering. Financial institutions are the gatekeepers of the system in this area and want to prevent money obtained illegally from being converted into legal money. In order to detect these practices correctly, financial service providers need a lot of up-to-date and reliable information about customers in order to be able to identify any atypical behavior.

"One could do this in a traditional way by questioning large masses of customers individually," Weynants quotes, "but this will take a long time and there will be too little focus on the main tasks of a financial institution, which will inevitably lead to frustration among customers and staff. More recently, technology has offered us several alternative ways to update data. For example, we can now capture external data via application programming interfaces (APIs). Analysis models can also be built to analyze the existing stock of customer data. In the context of 'Know Your Customer' (KYC), data and technology can help to reduce costs, strengthen compliance and deliver an excellent customer experience. This creates a positive experience for both the customer and the financial institution".