A good way to think about the mind-boggling burden of regulation hitting finance functions is to consider the number of pages devoted to new legislation and standards compared with earlier initiatives.
Glass Steagall took just 37 pages to separate US retail and investment banking for half a century. More recently, Sarbanes Oxley revolutionized boardroom requirements in just 66 pages.
Yet the Dodd Frank Act alone takes up 848 pages. Add in Basel III, the reconciliation of financial accounting standards and other measures and you have thousands of pages of new requirements.
It’s no wonder finance heads are asking: “How do I deal with all this?”
Huge pressure on finance functions
Talking to clients, it’s clear this deluge is transforming bank finance functions in at least three key ways.
First, they are under huge pressure to execute rapidly and cost effectively in an environment that is changing all the time.
Second, finance and risk are becoming increasingly integrated. For instance, regulators are demanding that financial reporting is linked back to risk reporting to show how much risk was absorbed when a product was sold.
Third, there is the drive for transparency and a multidimensional view of financial information. Both internal and external stakeholders want more information to understand the risk inherent in the business.
Most banks aren’t prepared for these demands. They have hundreds of product systems that were never meant to support these changes. (The biggest US banks have more than a thousand.)
Under time pressure, the path of least resistance is to buy a point solution to solve a tactical problem. However, typically all that does is add rigidity, making it more difficult to make the next set of changes.
We are working with customers to build a foundation for execution based on components that can work with existing systems and adapt to solve new problems as they emerge.
Finance and risk are supported under one platform and our Bank Analyzer tool, coupled with HANA, lets you decouple accounting from product systems for to analyze huge amounts of data in one component.
This approach lets banks build tactical moves on top of a strategic foundation. The piecemeal approach risks winning individual battles but losing the war.
What do you think? What challenges is the regulatory wave creating for your finance function?