As the banking industry becomes more and more dominated by technological innovation, compliance requirements are ramping up as well.

The state of banking regulatory compliance in 2022 is a mixed bag, with both the buy-side and the sell-side bringing in great achievements and major challenges. For financial institutions to stay ahead of the regulatory curve, it is crucial to establish clear priorities to plan accordingly for.

In this article, we will cover the good, the bad, and the ugly of banking compliance in 2022. Plus, we will cover our top compliance priorities to keep an eye on and discuss how CPQi’s services can help.

Banking Compliance Priorities for 2022

When it comes to banking compliance in 2022, one thing is clear: technology is reshaping regulation as we once knew it. As such, it is crucial to pay close attention to changes to regulation resulting from technological innfrovation.

Additionally, ESG (environmental, social, and governance) compliance is becoming increasingly challenging, as greater complexities are introduced in this realm. It is more important than ever for banks and other financial institutions to maintain a defined outlook on ESG regulations and their impacts on compliance and day-to-day business.

With these factors in mind, let’s look at 3 key compliance priorities for 2022:

  1. Consumer Privacy and Protection: With more technological advancements in banking comes greater risks to consumer privacy. This is especially true in terms of open banking, which requires explicit consumer consent and air-tight privacy protocols and risk management to keep customer data safe as it is shared between entities.
  2. Fair Lending Practices: The social aspect of ESG compliance is more important than ever before. As artificial intelligence and machine learning are used more frequently to created automated lending and decisioning models, it is crucial to prioritize the minimization of discrimination occurring due to faulty algorithms.
  3. Outsourcing and FinTech Partnerships: Keeping up with regulatory change has become a massive task requiring its own dedicated team. Rather than splitting the time of official staff between daily business tasks and compliance, financial institutions need to be looking into their outsourcing and FinTech partnership options now more than ever.

Emphasizing these priorities over the coming year is essential for financial institutions to find success while remaining in good legal standing.

Let’s now move on to the state of compliance itself and explore the good, the bad, and the downright ugly challenges that lay ahead.

Banking Regulatory Compliance

The Good: Buy-Side Attracts New Talent & Sell-Side Sets Key Data Example

The buy-side of banking refers to institutions that purchase investments and securities to raise capital, while the sell-side deals with the creation, trading, and sale of securities.

In recent times, banking institutions have expressed a desire to cut compliance costs significantly from where they currently stand. Despite these cost-cutting efforts, buy-side service providers have managed to maintain a relatively high compensation for compliance analysts and professionals.

According to a 2020 report from eFinancial Careers, the buy-side provides compensation for compliance experts that ranges from 10 to 20 percent higher than that of the sell-side. In turn, the buy-side is capable of attracting a larger pool of regulatory talent, giving institutions far greater options when it comes to either building an internal compliance team or outsourcing.

Sell-side compliance efforts are not without their own distinct advantages, of course. While the buy-side has been undergoing greater regulatory changes – and thus a rapid compliance modeling evolution – over the past few years, the sell-side has a longer history of dealing with large data sets effectively.

A 2021 Hedge Week report revealed that buy-side financial firms are struggling with this type of data management. As a result, institutions looking to enhance their buy-side compliance and data management models should look to the sell-side for better guidance.

The Bad: The Increasing Costs of Compliance for Both Buy and Sell-Side

For both the buy-side and the sell-side, budget cuts and cost-saving measures pose significant risks for the quality of an institution’s compliance modeling.

The primary challenge is finding more cost-efficient methods for dealing with exponentially increasing regulatory changes while still maintaining an effective and up-to-date compliance approach. However, due to the repercussions of the Covid-19 pandemic, increased reliance on technology investments to meet compliance demands has made regulatory budget cuts virtually impossible.

In Thomson Reuter’s 2021 Fintech, Regtech and the Role of Compliance Report, 70 percent of the 2,500 respondents stated that the pandemic did, in fact, increase their reliance on technology for not only compliance and risk management but also for decision making and performance monitoring.

The solution to this complex challenge will likely lie within FinTech partnerships and outsourcing, as these types of services allow institutions to utilize advanced compliance technologies without having to put forth massive upfront investments.

The Ugly: FRTB Implementation Delays & LIBOR Transition Challenges

Two of the biggest challenges currently facing the banking industry in terms of compliance and regulatory change are the ongoing FRTB implementations and LIBOR transitions.

Though initially slotted for implementation by January 1st, 2022, the global FRTB implementation has undergone moderate to severe setbacks, primarily due to pandemic complications. As a result, these implementations – which were meant to unite the global financial industry under a strengthened financial system – have become fractured from nation to nation, with some regions like the U.S. and U.K. even pushing back the deadline to between 2023 to 2024.

Simultaneously, financial institutions across the globe are dealing with the complexities involved with updating legacy contracts that reference LIBOR, as the discontinuation interest reference rate has officially begun as of end-of-year 2021.

Both the FRTB implementations and the LIBOR transition pose tremendous regulatory changes and compliance burdens on financial institutions – and with the deadlines of both events looming over the entire financial industry, institutions must place heavy emphasis on planning and carrying out both.

Final Thoughts: Keep Up with Regulatory Change Seamlessly with CPQi

At CPQi, our teams go above and beyond to keep your institution on track with regulatory change and in good standing with compliance.

We offer more than just regulatory consultations – our compliance teams can help you automate your regulatory models, as well as carry out any necessary implementations or contract changes. This includes the upcoming FRTB implementation and the ongoing LIBOR transition.

To learn more about CPQi’s regulatory change services, contact our team today to book a consultation.

Book a Consultation Today