Compliance functions across financial services have gone through a major period of growth and investment since the financial crisis. Many firms have seen a massive growth in their Compliance functions since 2008. But there are now growing pressures for change to improve both the effectiveness and the efficiency of the Compliance function.
In this paper we focus on how Compliance can meet the twin objectives of effectiveness and efficiency, and what firms need to do to transform their compliance function.
Operational resilience is usually defined as the ability of an organisation to adapt rapidly to changing environments. This includes both the resilience of systems and processes and more generally the ability of the organisation to continue to operate its business in the event of disruptive events.
The emerging approach of regulators in the UK in particular has taken a broader view of operational resilience, covering all risks to the provision of key business services and focusing increasingly on how the continuity of key business services could be preserved in the event of disruptions occurring. This represents a fundamental shift in how financial institutions in the UK should approach operational resilience.
Our discussion paper looks at:
A new European Central Bank (ECB) unit dedicated to the cross-border coordination of anti-money laundering (AML) is a sign of an increasing focus on AML at the European level. There will be no immediate impact on supervision, but firms should be aware that the growing harmonisation of AML efforts is only likely to heighten scrutiny of their defence mechanisms. Cutting corners on AML may save costs, but carries heavy long term risks.
KPMG Ireland has recently launched the Irish edition of its 2019 KPMG Global CEO Outlook titled ‘Agile or Irrelevant’. The Global CEO outlook is the biggest thought leadership project from KPMG. The main themes of the report are Leadership, CEO agility and challenging and disrupting business norms.
In this fourth annual KPMG Irish CEO Outlook, KPMG spoke to 1,300 CEOs in some of the world’s largest organisations such as Microsoft, Walmart, Northrop Grumman, Siemens and Bridgestone to discuss how they are confronting long-held market orthodoxies and assumptions that govern decision-making.
The Global CEO outlook discusses some of the most compelling findings of the survey conducted worldwide, the need for CEOs to drive an organisation wide digital reinvention, the increased focus of CEOs on agility and the ability to challenge and disrupt business norms. This is a stark choice for CEOs everywhere.
Now in its 21st year, the Harvey Nash / KPMG CIO Survey 2019 is the largest IT leadership survey in the world, with over 3,600 responses from CIOs and technology executives across 108 countries.
The survey provides direct insight into the priorities, strategies and careers of senior technology leaders around the world. In our digital age, it is no surprise to find that more IT leaders are reporting budget increases than at any other time in the last 15 years - but what are they using this for? How are they managing the balance between the huge opportunities that disruptive technologies such as AI bring and the risks of cyber security, data privacy and regulation?
A clear set of Digital Leaders are differentiating themselves from the pack and delivering real business results in nearly every measure. We take a closer look at these, finding that, on average, their time to market is better, their customer and employee experience is superior and their operational efficiency is higher. As a result, both revenue growth and profitability are higher too.
Digital Leaders work collaboratively with the business to put technology in the hands of value creators, clearly recognise the power of data and have a relentless focus on speed and agility.
In our special report, Becoming a future-ready Digital Leader, we reveal how these leaders are outpacing their rivals in six key areas that we believe the IT function must get right in order to deliver business value, as identified in our Future of IT series.
In its June 2019 Insurance Quarterly the Central Bank of Ireland (“CBI”) has reinforced its earlier discussions made in its various publications, addressing diversity and inclusion urging all undertakings to take steps to address diversity and inclusion in the boardroom, at executive level and across the organisation. Another regular topic of focus for CBI has been Operational Resilience. Irish firms are required to demonstrate that they have appropriate safeguards and processes to manage operational risks around IT failure and outsourcing arrangements in an effective manner.
Some of the key insurance updates in the quarterly newsletter include the following:
Download the Insurance Quarterly (PDF, 821KB)
At the New York Fed culture conference Gráinne McEvoy, Director of Consumer Protection at the CBI, shared insights from the CBI’s review of the behaviour and culture of the Irish retail banks and spoke about the reforming culture in the financial services industry.
Gráinne explained the CBI’s approach of conducting behaviour and culture reviews of Irish Banks which also included Diversity and Inclusion assessments as an important part.
Gráinne also touched upon the CBI’s Reform proposals such as the Senior Executive Accountability Regime (SEAR) that is proposed as part of the Individual Accountability Framework.
Speaking at a Financial Services Ireland and City of London Dialogue event, Michael Hodson, Director of Asset Management and Investment Banking at the CBI, discussed the role of regulatory authorities and their dynamics in line with the changing world. The significant organisational changes undergone at the CBI since the economic crisis of 2008; the introduction of PRISM in 2011; and the creation of the Prudential Regulation Pillar and of the Financial Conduct Pillar in 2017.
Michael listed the various key factors affecting the Irish regulatory landscape such as Brexit, wholesale financial market activity conducted in and from Ireland, Data, FinTech and requirements to have appropriate IT Risk management in place.
Michael provided an insight on the initiatives taken by the CBI with regard to sustainable/ green finance, whereby the CBI has joined two international forums such as ‘The Sustainable Insurance Forum’ and ‘The Network for Greening the Financial System’. Michael also spoke about the CBI’s role in contributing to the implementation of the European Commission’s Action Plan for Financing Sustainable Growth.
Joined by Gina Fitzgerald, Head of the Financial Risks and Governance Division in the CBI,
Mark Cassidy, Director of Economics and Statistics at the CBI delivered his opening remarks on Brexit and its potential implications on the financial system, while speaking at the Seanad Special Select Committee.
Mark referred to the proactive role of the CBI in dealing with Brexit and to the Brexit task force and Brexit Steering Committee set up to oversee the stages of the CBI’s preparations for the UK’s departure from the EU. He informed that the CBI has regularly published the work of the Brexit Task Force, answers to frequently asked questions, has discussions at several stakeholder roundtables, and published numerous reports and speeches in relation to Brexit.
Discussing the CBI’s assessment of potential implications of Brexit for the Irish economy, Mark highlighted that if a disorderly no-deal Brexit scenario can be avoided, the outlook for the economy over the next two years remains broadly favourable.
As the current European Commission’s five-year mandate draws to a close, with preparations under way for the appointment of the new Commission, the Joint European Supervisory Authorities’ Consumer Protection Day 2019 was hosted by the CBI at The Mansion House, Dublin in June. Speakers such as EIOPA chair Gabriel Bernardino, European Ombudsman Emily O’Reilly and Executive Director of the Federation of European Consumer Organisations, Klaus Mueller delivered their remarks on various topics ranging from the European System of Financial Supervision (ESFS) to consumer protection.
Speaking at this event, Derville Rowland, Director General, Financial Conduct set out the CBI’s strong support for enhanced supervisory convergence across Europe. She talked of the challenges ahead particularly in areas such as fintech and sustainable finance. In addition to this, Derville highlighted the importance of culture and explained how culture failings have had severe consequences for customers and shareholders and for the stability of the financial system as a whole.
The CBI, with approval from the Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD, has set out plans to move, with some limited exceptions, to full industry funding of the regulatory costs over the next five years.
Since 2015, following a public consultation, the financial services industry has moved from paying approximately half of the costs of financial regulation to paying approximately two-thirds of these costs for 2018 to the CBI.
The Commission Delegated Regulation (EU) 2019/981, amending the Solvency II Delegated Regulation ((EU) 2015/35), has been published in the Official Journal of the EU on the 18th June 2019 and entered into force on 8 July 2019.
The amendments include changes to capital charges on assets as well as several standard formula simplifications designed to make capital calculations easier, particularly for smaller insurers.
Download the regulations (PDF, 1.8MB)
On 10 July 2019, EIOPA published four opinions to assist National Competent Authorities (NCAs) in the implementation of the Institutions for Occupational Retirement Provisions (IORP) Directive. They are as follows:
The Opinion on the supervision of the management of environment, social and governance (ESG) risks faced by IORPs that provides an illustrative mapping of how ESG risks may arise in traditional prudential risks. Read the opinion here. (PDF, 587KB)
EIOPA published its June 2019 Financial Stability Report of the (re)insurance and occupational pensions sectors in the European Economic Area. The report contains discussions on the key risks identified for the insurance and occupational pension fund sector, an in-depth qualitative and quantitative assessment of the risks identified and a thematic article discussing the impact of green bond investment policies on the share price performance of European insurers.
The financial stability report highlights that the central banks have put interest rate increases on hold until at least mid-2020 resulting in a more prominent risk of a prolonged low yield environment.
The Financial Stability Report shows that while overall the insurance sector remains adequately capitalised, profitability is under increased pressure in the current low yield environment. The Solvency Capital Requirement ratio for the median company is 223% for life and 207% for non-life insurance sector, although significant disparities remain across undertakings and countries.
Read the report (PDF, 7MB)
The Joint Committee of the European Supervisory Authorities (EBA, EIOPA and ESMA) has published a Report on the cross-border supervision of retail financial services.
This report describes the main issues that the NCAs are facing and provides an overview of the main consumer protection and retail conduct of business rules that apply to the cross-border provision of financial services. The report concludes with a number of observations arising from the analysis of the issues and the current legal framework and with some recommendations for EU co-legislators and the NCAs.
Read the report (PDF, 928KB)
EIOPA has invited comments on the consultation paper on harmonisation of National Insurance Guarantee Schemes (NIGSs) across the Member States of the EU. An IGS provides protection, partially or in full, to policyholders when insurers cannot meet their contractual commitments. At present, there are no harmonised EU rules for IGSs as a result of which Member States have chosen their own approach towards policyholder protection schemes. In this consultation paper, EIOPA has analysed the costs and benefits of the main options considered from a qualitative point of view. EIOPA’s view is that every Member State should have a national IGS in place for the protection of policyholders in the event of insurance failures.
The due date for sending the comments to EIOPA is Friday 18 October 2019.
Read the consultation paper (PDF, 1.4MB)
In this speech, Anna Sweeney, Director, Insurance Supervision at the PRA discusses the importance of building and sustaining a diverse workforce and inclusive working environment across the financial services sector. Anna shared what the Bank of England has been doing to overcome the similar challenges faced by the insurance industry in this regard.
Some of the measures shared by Anna include making diversity a top strategic priority for the Governor, the executive and the Court of Directors; hosting of events focussing on LGBT and disability inclusion; setting challenging targets for Female representation, BAME representation (Black, Asian and Minority Ethnic) at the senior management level creating a BAME Taskforce chaired by Deputy Governor Sir Dave Ramsden; and signing of the Women in Finance and Race at Work Charters.
Anna also spoke of various other actions and steps taken by the Bank of England that have worked well in developing an inclusive culture.
Read Anna Sweeney's speech here (PDF, 395KB)
In this speech, Lyndon Nelson, Deputy CEO & Executive Director, Regulatory Operations and Supervisory Risk Specialists spoke about the operational failures affecting the UK financial sector including the threat from Cyber and the need for the regulators to push operational resilience up the agenda.
Lyndon mentioned the discussion paper issued by the UK authorities on the approach to enhancing operational resilience of the UK financial sector. He spoke of the two changes set out by the discussion paper such as the need for firms to assume that operational disruption would occur and plan accordingly and the need for strong collaboration.
Read Lyndon Nelson's speech here (PDF, 216KB)
The Prudential Regulation Authority (PRA) published its annual reports for the 1 March 2018 to 28 February 2019 year. The PRA report includes information on its activities for the year ended 28 February 2019, makes reference to the PRA’s secondary competition objective and to the financial risks challenges that come from climate change.
Read the annual report (PDF, 1.8MB)
Update: The Bank of England’s amendments to financial services legislation under the European Union (Withdrawal) Act 2018
This Bank of England and PRA joint policy statement sets out the policy to deliver the general approach being taken to ensure there is a functioning legal framework when the UK leaves the EU.
The PRA invites feedback on the proposals set out in this consultation paper. The consultation closes on Wednesday 7 August 2019. This Consultation Paper (CP) proposes minor amendments to Prudential Regulation Authority (PRA) Rulebook Parts, supervisory statements (SSs), and the relevant templates and LOG files.
Read the consultation paper (PDF, 1.5MB)