Thoughts for 2015

At the turn of a new year I like to have a look at what I think will be the themes and challenges in the months ahead. My thoughts for 2014 presented a challenge for change professionals to be brave enough to try new ways of delivering change. After a year working on many aspects of regulatory change in financial services I published another note in Q4 on why regulatory change is different and some thoughts on new/different approaches.
Now as I look into 2015 it feels as if we are moving into a new phase. Consequently my current thoughts are aimed more directly at the COOs and business managers with financial services. In this note I offer three aspects that I think warrant their serious consideration.

#1 LESS FORBEARANCE For the last couple of years, as a number of regulations have been developed and enshrined in rule and law, the regulators have demonstrated a fair degree of pragmatism and forbearance in their supervision of firms. This is changing and the signs are that expectations are rising and in future enforcement will be more aggressive. The time is approaching when a firm’s best intentions and efforts will not be enough to protect them from criticism and sanction. Just look at the FCA’s stated priorities for 2015 relating to EMIR to understand the direction of travel.

IMPLICATION 1: Firms need to both clear the backlog of outstanding regulatory items/issues that most have AND produce better delivery for the next rounds of change such as mandatory clearing and, in due course, MiFID.

#2 BETTER DECISIONS 2014 saw a number of firms undertake a considerable amount of rework as the decisions they made in 2013 proved to be poor foundations for 2014 and beyond. Examples include the initial blind rush by many firms to delegate their initial trade reporting, an operating model that then could not extend into exposure reporting and indeed has often proved ungovernable. Another example has been the reliance on what seemed safe and largely inconsequential default EMIR classifications. Now the stakes are rising with clearing, this is requiring considerable rework. It could have been avoided.

IMPLICATION 2: In order not to waste effort and risk regulatory criticism a firm needs to make better design decisions within its regulatory change portfolio. With mandatory clearing and MiFID both big topics for 2015 it is important to keep eyes on the future and not just take the easiest current option.

#3 MORE BAU 2013 and 2014 has seen a heavy reliance on change resources within project teams to augment the core operational capacity of many firms. The new regulatory processes are here to stay and the additional work this brings needs to be embedded with the business as usual (BAU) teams. Examples include the need for Investment Banks to look at an investment managers’ funds and accounts in the same way as a direct client and the regulatory governance that many structural entities like SPV’s now need to demonstrate. All this comes at a time when there is huge pressure on COOs to cut operational costs.

IMPLICATION 3: This is a great time for some smart thinking about organisational design and operating models. A review of operational capabilities, including all outsourced arrangements may be beneficial. It will be critical to ensure that the capacity for proper judgement is embedded in the right teams.

I am very happy to expand on and debate these and other issues if anyone wishes to.

Best wishes for a successful 2015