How lenders can win from Europe’s regulatory shake-up?
Compliance is necessary but it poses an ever-evolving challenge. It has an impact on resources, manpower and capacity for many businesses. But ensuring concrete business benefits for every euro spent on regulation is possible and should be a commercial goal in today’s competitive environment. says Experian consultant Damien Prevosto.
New research among nearly 600 senior decision-makers across the EU reveals four out of five (80%) are not confident in their ability to meet existing regulations – regardless of what’s in the pipeline.
It’s no surprise given the clock is now quickly ticking down to GDPR’s May deadline on new data protection rules. The demands of open banking in the shape of PSD2 are 18 months away, while Basel IV’s next set of capital requirements also loom large. IFRS 9, which requires banks and lenders to pro-actively make provisions on their balance sheets for expected future losses, is now in place having come into force at the beginning of this year.
Add to that the day-to-day demands of safeguarding customers against fraud, steering clear of AML risks and it’s no surprise business leaders face a day-to-day regulatory headache.
But each challenge can be tackled. With a combination of the right analytics expertise, large data sets, software and consultancy support, the implications of the sweeping new regulatory changes can be tackled in a way which transforms the challenges into a real competitive advantage.
The EU’s GDPR involves major changes to the way business can collect, store and use data. The rules affect everything from customer consent and “the right to be forgotten”, when an individual can ask for their data to be deleted if there is no “compelling” reason for it to be retained, to the way companies report data losses. The prospect of huge fines for GDPR failures is now concentrating the minds of many company boards, given regulators will have the power to penalise businesses €20m, or up to 4 per cent of their previous year’s global turnover – whichever is higher.
While the potential numbers are big – it’s not all doom and gloom. With the right strategy, GDPR can have a clearly positive impact on business across Europe. The right analytics and consultancy support, companies will be able to directly improve their performance and the way they serve their customers, gaining valuable headway against others in their market. For example, implementing real-time validation of accurate personal data on any new customer journeys, will help ensure lenders are both improving the user-experience and taking a big step toward better data collection, quality and governance.
Gaining business benefit from PSD2 and the sentiment behind open-banking also hinges on a combination of analytics expertise and access to broad data sets. It will inform very accurate credit scoring techniques and help drive the most appropriate lending decisions – all delivered remotely, without reams of supporting paperwork and allowing banks to forge ahead with their digital aspirations.
Despite the next Basel regulations being several years away, it’s also worth getting back-office analytics teams quickly in shape now to meet the demands of further improvements to forecasting, capitalisation and modelling techniques.
Bulgaria’s innovative Postbank is a case in point. By near-shoring analytics expertise, using the right mix of consultancy services and plugging into the best datasets, it proved it could stay ahead of the market by successfully completing an IFRS9 project within six months. It’s a head start which brings concrete business benefits and frees up resources to allow the bank to continue moving ahead in other areas.
A Postbank risk management expert said:
“Experian’s expertise, insight, in-depth knowledge of our sector and its flexibility proved invaluable in delivering what we needed in such a short time frame. Our CRO, my team and the team at Experian have worked extremely hard together to meet regulatory criteria and deadlines to implement a state-of-art IFRS 9 solution.”
Regulatory compliance needn’t be regarded as a cost to the business. With the right support and strategy, all regulatory changes can be adopted to deliver immediate benefits and help capitalise the cost of effort in meeting regulatory deadlines. By implementing key technical layers into their systems in a planned and strategic manner, lenders will be able to improve their own efficiency, reputation and cost-effectiveness by offering the appropriate credit decisions, supported by improved scoring techniques, to consistently better serve customers with the best borrowing options, allowing them to win precious market share.
Do you want to know more about our PSD2 proposition? Please, come and hear Damien Prevosto, Senior Business Consultant at Experian at the upcoming GDPR and PSD2 Forum in Amsterdam on 19th February at 12:00 on Digital lending and open-banking: what changes will it bring? He will explain how gaining business benefit from PSD2 and the sentiment behind open-banking hinges on a combination of analytics expertise, large data sets and software. It will inform very accurate credit scoring techniques and help drive the most appropriate lending decisions. We will share insights on how this will allow banks to forge ahead with their digital aspirations.