Regulation and risk force shift in bank mentality: study


Australian banks will need to adopt a forward-looking approach and move to leverage new technologies to counter new risk and regulatory threats, according to a study by Wolters Kluwer Financial Services.

To counter the surge of risk and regulatory threats in financial services, Australian banks will need to be more agile and embrace innovation, according to a study by Wolters Kluwer Financial Services (WKL Financial Services).

The findings show that Australia’s authorised deposit-taking institutions (ADIs) will start seeing a further integration between risk and finance, with 2016 marking a heavier reliance on integrated data sets as financial incumbents adopt a “forward-looking approach” in response to an increasingly “challenging risk and regulatory environment”.

“Banks in Australia who wish to remain competitive will need to break down traditional silos,” WKL Financial Services said.

“The agendas of the chief risk officer and chief financial officer will be impacted by regulatory change, as the Australian Prudential Regulation Authority aims to ensure Australian ADIs’ capital ratios are unquestionably strong by the end of 2016.”

According to the study, Australian banks that use interest rate, foreign exchange, credit, equity and commodity derivatives will also be impacted by the mandatory move to the standardised approach for measuring exposure at default for counterparty credit risk next year.

Furthermore, the study shows that banks will need to analyse how the new regulation will affect their capital requirements, ensuring that they have the right hedging and diversification strategies in place in order to help minimise any potential impact.

“[When] taking into account additional pressures on boards to demonstrate their strong governance over their risk management practices and risk culture, it becomes clear that change is a must for Australia’s financial services industry,” the company said.

APRA is also expected to begin discussions on the formation of an Australian framework for loss absorbing and recapitalisation capacity for Australian banks later this year.