In the race to comply with regulations spawned by the financial crisis, more than half of 131 financial services companies surveyed by Accenture say they will spend about $200 million dollars each in fiscal year 2014—but they may be missing the bigger picture.
“They need to make sure they really see this as an opportunity to capitalize on changes” required by global structural reform, said Samantha Regan, a managing director of finance and risk services at the consulting firm and leader of its regulation and compliance practice.
“They should see it as an accelerant for improving management,” Regan told Advisen. She co-authored Accenture 2015 Global Structural Reform Study.
Its survey of companies with at least $40 billion in assets within a single country–and product offerings in more than one country–was made in fall of 2014 and includes 45 insurers. Participants were based more or less evenly in Latin America, the Asia Pacific region, Europe and North America.
Rules developed at the jurisdictional level “without clear convergence” have forced global institutions to reevaluate their post-crisis business model, according to the study. While some have begun to respond by reconfiguring their geographical presence, product lines or markets, the companies need to organize a long-term response and “unlock potential in a new ecosystem,” as well as engage stakeholders.
“Delivering long-term value for the financial institution will require a shift beyond a point-regulation approach to one that considers other competing regulations or broader forces in the marketplace,” the study said.
Such regulations, including the Volcker rule, the Vickers ring-fence and Basel III, have complicated a situation “already beset with macroeconomic disruptions,” including those to industry from the rise of digital technology.
Fewer than one-quarter of the companies surveyed said they were compliant with Dodd-Frank Section 165/6, for example, which strengthens supervision and regulation of large US bank-holding companies and foreign banking organizations. Between 23 percent and 48 percent were still in the implementation stage on various reforms, and between 2 percent and 16 percent said they had not yet started.
As part of a long-term, “strategic” response, companies should think in terms of “seven pillars” of global structural reform, Accenture said, including scrutiny from domestic regulations, which require tailored responses, and stricter stress testing.
To realize the business potential that can come from adopting reforms, they should “think local, not global,” and align global capabilities with local ones in the jurisdictions in which they operate; aim for market-driven specialization; focus on compliance and efficiency; and think with “an innovation mindset,” taking into consideration potential threats such as digital-driven payment and the proliferation of portfolio management companies.
“If you’re working as a broker, the changes you need to be aware of are across the board,” said Chris Johnston, a managing director in Accenture’s finance and risk practice.
“Access to certain coverages could change,” Beck told Advisen, citing differences in where coverages are available due to reforms, as well as in the products themselves. “I think you’re seeing more value-added services in personal lines” of insurance.
Among the insurers surveyed, the most (27 percent) said they are launching new geographic units in response to regulatory changes, and the least (9 percent) that they are relocating headquarters or business units. The most (45 percent) said they planned within the next two years to launch new products or service lines, and the least (25 percent) to shutdown a product or service line.
Most insurers also said they were currently in discussion about focussing more on core competencies (42 percent) and increasing headcount by hiring permanent staff (also 42 percent). The fewest were discussing launching new products or service lines (18 percent) and increasing headcount via outsourcing (also 18 percent).
