Financial Services Will Use Trust as a Competitive Advantage in 2018
Financial services firms should expect to be pulled in two very different directions in 2018. In the U.S., companies can expect a substantial push toward deregulation with the Dodd-Frank Act. In Europe, regulations will tighten as the Markets in Financial Instruments Directive (MiFID II) goes into effect during the first quarter of 2018 and the General Data Protection Rule (GDPR) becomes enforceable in May 2018.
A whiplash-inducing regulatory environment won’t be the only challenge facing financial firms in 2018. New technologies such as blockchain could change the role of brokers and eventually decentralize the stock exchanges themselves. Firms focused on the regulatory challenges ahead should consider 2018 as an opportunity to gain competitive advantage, particularly when it comes to utilizing client data and innovation.
New Regulations Change the Game
In the U.S., consumer protections such as the Consumer Financial Protection Bureau (CFPB) face an uncertain future. In Europe, however, MiFID II places significant restrictions on the way products are developed and presented to clients. It also ensures greater transparency on broker compensation and creates an almost real-time broadcast of trade data. To meet these demands, firms operating in Europe will have to:
- Develop a defined business model, including full transparency around target markets, trade execution, advising and distribution.
- Design transaction reporting tools that meet existing regulatory requirements and MiFID II.
- Maintain current records of product charges and costs, including thorough disclosures about spending on research.
- Determine their status as manufacturers or distributors and evaluate product appropriateness according to that status.
- Establish systems to communicate securely with other firms along the product cycle.
Under GDPR, firms must obtain more explicit consent from their clients on how personal data is used and maintain records on how data is processed. New technology can’t be implemented without an assessment of its impact on data privacy. It’s easy to see why many firms dread implementing these regulations. However, enterprises can also use the new regulations, along with emerging technologies, to gain a competitive advantage.
Financial Services Built on Trust
The key component underlying stable financial markets is trust in their stability. Take the U.S. as an example: U.S. firms have become better capitalized under Dodd-Frank. Firms that find themselves in serious financial trouble can now wind down without an expensive taxpayer bailout. Fiduciary disclosures and the CFPB have given consumers greater confidence that banks and brokers need to behave in the consumer’s best interest. In 2018, financial services firms should make the best of new regulations by leveraging trust as a competitive advantage.
Leveraging trust means improving transparency and partnering with technology services providers that have a proven history of implementing compliant reporting, data protection and data analytics solutions and significant expertise on the effects of new regulations.
Firms that offer real transparency should expect not only to survive but to thrive in 2018. Look for a strategic technology partner that can help you to navigate regulations and get a head start on innovation.