A challenging market environment - addressing regulatory hurdles whilst not losing sales out of sight Financial institutions and banks in particular find it increasingly difficult to remain profitable while simultaneously meeting more and more rigorous international laws and regulations. Implementing ever new and changing rules is a must yet highly complex while at the same time eating away budgets which then lack for e.g. sales related topics such as ‘Digitalization’. TALOS, a Swiss based consulting boutique focussing on the Financial Services Industry, has set as its goal to help its clients to overcome regulatory hurdles while at the same time sustain profitability and meet the challenges of an industry in the progress of digitalization.
Interview with Matthias Greiller, Partner
Mr. Greiller, what has been the biggest challenge in recent years?
Over the last couple of years all of our clients were facing a dramatically changing business environment. Partly as an outcome of the financial crisis, the financial services industry faced massive regulation. In our ‘home market’ Switzerland this even led to a loss of the once world famous Swiss banking secrecy in cross-border business. With this not enough, margins were eroding and clients became more and more reluctant to pay for what they consider high priced banking services.
Could you give me an example?
Limiting to one example would not cover the full picture of what has happened. Just a few “highlights”… Take the enactment of the US Foreign Account Tax Compliance Act (FATCA) to increase tax transparency of US taxable persons holding assets with financial institutions abroad. This ran directly against the Swiss banking secrecy. FATCA led to massive implementation needs and yearlong projects to get global and local banks compliant. It served as blueprint for and was followed by AIE, Automated Information Exchange – a regulation which now enables other nations as well to exchange client data with banks to gain transparency on potential tax evasion. The list can be continued MiFID II, PRIIPs, Dodd-Frank… Please don’t get me wrong, some of them serve very well to better protect clients and allow them to ultimately receive a better service. Yet efforts and consequently cost is enormous to implement such regulations and adapt established business models.
Is Switzerland now obliged to submit account details?
Like many other countries, Switzerland signed a bilateral agreement with the United States in 2013 which came into effect beginning of 2014. It obliges Swiss institutions to provide comprehensive data on clients with a US nexus to US tax authorities. In addition, financial institutions are obliged to withhold 30% of all US source FDAP income of non-participating foreign financial institutions (‘NPFFIs’) in order to meet the requirements of FATCA.
What has been the response among your clients?
The flood of regulations has proved to be a major headache for them. They are now concerned about how to correctly and efficiently implement all these laws, directives etc. which were enacted over the past years. The cost related to this combined with declining revenues due to also macroeconomic factors have led to a massive change in the financial services industry – and substantial job losses.
How much work does this mean for your clients?
A tremendous amount of work. For example, legacy processes need to be adapted, new ones to be designed and implemented, systems need to be made ready to reflect them and last but not least employees in Switzerland and abroad need to be trained. Complex, but feasible – when applying the right methods and techniques.
But this is most likely not the only thing you do in Sales & Regulatory Management?
Absolutely not. Whilst organizations are busy adapting to changes in the regulatory environment, challenges come from the revenues generating side as well - a new “mega topic” has surfaced – “Digitalization”. Unfortunately, Digitalization has turned into a buzz word in the financial services industry which has yet to be filled with ‘tangible’ content.
Is it sufficient to spice up your ebanking? If so, with what and how? Or does a bank now have to hand out tablets to all clients so they can e.g. get video advice by their relationship manager - although many of especially elderly clients may still not be familiar with this technology and may have a ‘bad experience’ if it doesn’t work? What exactly is the added value of having everything online and automated everywhere every time? Would you yourself trust ‘robo advice’ when it comes to investing your own money? And last but not least - can I offer digitalized services my company can charge for? At what risks does all this come?
TALOS has gathered relevant experience from ‘day 1’ of this mega trend. We help our clients to take a considerate look at what Digitalization may mean for them and help to identify the right options. We already look back at hands-on experience gained out of digitalization projects for globally acting banks. Recently we helped a client to determine the right mix between personal on-site advice and bringing in experts on investment related topics via video (only…) as needed.
Although TALOS has set itself up along core offerings we follow a fully interdisciplinary approach allowing us to address any challenge such as Digitalization from multiple angles – e.g. start with client needs, match or develop products, define processes, identify and mitigate related risks, assess IT impact and last but not least, transform the organizational set-up and train staff involved.
To discover our full range of services in the area of Sales and Regulatory Management or to discuss your specific business challenges, please get in touch with Matthias Greiller via firstname.lastname@example.org
A global Swiss private bank
The client needed to comply with the FATCA legislation imposed by the IRS. The client wanted to ensure that all its branches across the world properly applied the FATCA regulations.
First TALOS helped to establish a global project governance in which roles and responsibilities were clearly defined and assigned. In addition, various risk and escalation scenarios were evaluated. Branches abroad received location specific guidelines and work packages. Weekly status reports were collected to assess progress made and determine and provide assistance as needed. Furthermore internal and external communication plans were set up and implemented.
Applicable FATCA legislation was implemented throughout the organization. Going forward the client can now monitor if and how foreign branches meet FATCA requirements, ensure global compliance and quickly take corrective action if needed.