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Report: Insurers investing heavily to comply with global regs

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More than half of large financial services institutions intend to pour at least $200 million into projects to address global structural reform (GSR) regulations this year, new research shows.

Accenture unveils this finding in a summary of results from an online survey of 131 financial institutions involved in a project driven by regulatory change. Each respondent company had at least US $40 billion in consolidated assets within a single country (including on- and off-balance-sheet consolidated assets) and offered more than one product in more than one country.

Conducted in August and September of 2014, the survey covered all major geographies: Latin America (29 percent of respondents); Asia-Pacific (25 percent); Europe (23 percent); and North America (23 percent).

The report shows that 56 percent of respondents surveyed, including insurers banks and capital markets firms, plan to invest $200 million-plus on initiatives to comply with (GSR) regulations in 2015. And nearly one-third intend to spend at least US $500 million.

GSR regulations were introduced to re-shape financial services institutions and make them more resilient following the financial crisis of 2007-2008. The Accenture 2015 Global Structural Reform Study — based on a survey of 131 banking, insurance and capital markets institutions globally — confirms the large-scale investment to address GSR regulations, given that less than one-quarter of survey respondents said they are compliant with key GSR regulations such as Dodd-Frank Section 165/6 and Basel III.

“Over the past five years, many firms have struggled to keep pace with the multitude of regulatory, conduct and compliance related issues. Their responses have been fragmented and they have made significant investments in people, process and tools to remediate,” says Steve Culp, senior global managing director for Accenture Finance and Risk Services. “Looking ahead, the financial services landscape will continue to be re-written, given the cumulative impact of global structural reform, especially for internationally active banks and insurers.

“Those with a clear and connected global implementation plans in place will be best positioned to get the most from their investment,” he adds.

Among the report’s additional findings:

  • Nearly all of the respondent companies say they are prepared to comply with the changing structural regulations. Six in 10 respondents say they are “well prepared” and another 35 percent saying they are “extremely well prepared.”

  • While nearly all respondents have a change program in place — only one percent say they have no change program in place to address the new regulations — four in 10 (42 percent) said they are running a change program under a global umbrella.

  • Nearly 5 in 10 (47 percent) say they are addressing regulatory changes on a regional basis.

  • Three-quarters (75 percent) of respondents say they expect that most trading activity in the industry will be moved outside of banks to hedge funds and asset management firms.

  • Almost two-thirds say they plan to reduce the current number of products they offer (63 percent) or to offer new products and services (62 percent).

  • Nearly half (48 percent) plan to focus more on core competencies within the next two years.

  • Whereas almost 9 in 10 (89 percent) of respondents say that GSR will increase the industry’s profitability, they also believe that not all institutions will be able to afford the cost of GSR compliance.

  • More than 7 in 10 respondents (71 percent) forecast that small banks may fall out of the market because they might not be able to afford to keep up with regulatory changes.

“Financial institutions cannot afford to adopt a wait-and-see approach in their response to the challenges presented by GSR,” says Samantha Regan, a managing director in Accenture Finance and Risk Services and lead of the Regulation and Compliance practice. “They need to tackle structural reform with the same bold, strategic thinking that they are using for other industry challenges. First movers can potentially turn this challenge into a competitive advantage with clients and customers drawn to firms with clear business strategies.”

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