Corporate Finance, DeFi, Blockchain, Web3 News
Corporate Finance, DeFi, Blockchain News

The Corporate Action Plan to be compliant with the EU Bank Union and the Financial Regulation Program

European Commission's action plan for a common corporate/company law and the related governance, risk and compliance activities illustrates a clear determination to avoid future systemic financial crises. We review some aspects that are of considerable interest to all stakeholders in the financial sector.

Porbunderwalla Kersi
Porbunderwalla Kersi
The road to the EU banking union and the associated compliance and financial regulations is paved with a long list of principles, procedures, frameworks and structures that support the upcoming management and central supervision by the European Central Bank. It has been a struggle to reach an agreement and consensus amongst most member countries. The efforts were needed to achieve the reforms that followed in the wake of the omnipresent credit, financial and trust crisis created by the failure of Lehman Brothers.

The road to achieve the EU banking union is further paved with a long to do list full of responsibilities, including the implementation of systems, processes, controls, change management issues and implementation of an integrated IT tool to be able to be compliant.

The three main barriers for the financial sector to implement an effective across the organization Governance, Risk management, Compliance and IT security activities are:
- Strategic uncertainty about where and how markets and regulation is heading. What are the business needs, combined with uncertainty on the payback on the large sums spent on IT and risk management
- Organizational conditions that the IT system and functional competences due to increased specialization
- Technical complexity arising from the nature of sophisticated financial instruments that are reflected both in the current control and risk management systems

There are a number of areas where financial institutions must consider the EU Commission's action plan and establish governance, risk, compliance and the related IT activities:
- Start by streamlining the current business model and value chain, and review the existing policies, procedures and processes. The new and increased demands on regulation, governance, risk management compliance and reporting requires the implementation of a state-of the- art change management procedures.
- What are the consequences for European banks, insurance companies and other financial institutions when introducing new regulation, uniform rules and supervision across the EU?
- What are the processes, interaction and relationships that currently function in organizational silo’s that should be rectified. When implementing harmonised oversight and supervision of e.g. capital market processes, structures and infrastructure the traditional silo approach can be a disaster.
- How can the financial sector implement the required upgrades, integration and alignment of the present IT systems and processes? Understanding the new security issues between IT and business requires additional integration of the IT platform.

Economic and Monetary Union
There seems to be no doubt that the EU wants to shift towards a genuine economic and monetary union. The first step is to create a Bank Union and the related legislative framework. The sum of the various compliance and regulatory components together will form the basis for the monitoring of European banks and financial institutions in the future.

They proposed/adopted reforms provides a pretty clear answer as to how European financial institutions must maintain and monitor controls and supervision to ensure good corporate governance, risk management, compliance and IT security. The determination also illustrates the desire to be back on the right track after several years of intense uncertainty.

Monitoring compliance, disclosures and control
Financial institutions are still in the center of the continued crisis mode. Therefore, the new surveillance staff must focus more on automation and monitoring of the controls and supervision. The financial institutions can start with preparing a compliance gap analysis of the first 15-20 components of the action plan. Then determine the impact of the regulatory reforms that are either proposed or adopted for the financial markets.

A good start would be to organize a workshop and gain practical input from internal stakeholders in relation to the character and overview of the framework. How can financial institutions take advantage that the added monitoring, control and reporting to develop an IT platform that cuts across functional and organizational instead of only in silos. The clarification of this issue alone will create value to the organization and the bottom line and achieve a competitive advantage.

Transparency and accountability
The lack of debate on the EU banking union raises a number of strong discussions among the major banks and financial institutions. This time we recommend not to settle for the usual check-the-box approach.

How are financial institutions going to move forward and compete for the best management leaders, when the bonuses, option/incentive programs may be shut down? Is it possible to implement these regulatory requirements and a common set of rules that are only applicable to the EU - specifically in relation to banks' reserves?
- Can we avoid future financial crises simply by defining fair value, risk diversification and separating high-risk products from other routine banking operations?
- What is the significance of the EU banking union in relation to national banks and too big to fail issues?
- Can the EU banking union be implemented both inside and outside the Euro? - What are the implications it will have and vice versa.
- What is the social impact of a common EU banking union, due to increased interest rates and fees, to cover the cost of future failures, etc.

Until the implementation of Bank Union in March 2014, the financial sector must get quite busy trying to figure out the consequences, updates, gather relevant experience & reflections to be implemented so that the central and peripheral functions in the organization can find out the best way to handle Union Bank Union.

Therefore, all stakeholders in the financial sector must identify and accurately assess the impact of the new EU reforms. The deadlines are quite difficult, and the complexity requires that the key compliance stakeholders to implement the new measures and regulations without compromising the daily operations within the financial institutions.

Kersi Porbunderwalla is the founder and CEO of Riskability®, Copenhagen Compliance® and Copenhagen Charter®.
After his early retirement from ExxonMobil, Kersi has been involved in several Global Good Governance, Risk Management and Compliance (GRC) Projects for multinationals like IBM, Shell, BP, Volvo and others.
He continues to implement GRC journeys for a variety of clients to develop custom tailored GRC folder that includes methodologies, roadmaps, and specific solutions to assignments, training and certification.
Kersi conducts workshops, seminars and conferences that focus on developing and implementing GRC applications & frameworks into operational environments.
He is a consultant, instructor, researcher, commentator and practitioner on 4 continents.

Lundi 4 Mars 2013

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