Over the years, most developing nations have tried to strengthen their banking sector, primarily by introducing globally accepted regulations. Despite the global regulations being toned down and localized to suit the specific requirements of a particular geography, most banks are still in a nascent stage of technological evolution to absorb the changes as mandated. Regulators in developing markets must understand that for banks to comply with newer regulations in the future, there has to be considerable amount of background technological evolution primarily from a data perspective. And, this is where developing nations can take a cue from the Reserve Bank of India (RBI) before creating a roadmap for Risk and Compliance regulations.
The RBI had diligently dispensed critical Compliance and Risk regulations post the financial crisis to improve the Indian banking sector’s stability. The regulator first introduced a set of local measures, including data stabilisation measures, during the initial phases of the regulatory wave, before focussing on global initiatives, such as FATCA, Basel III and LCR/NSFR. The primary motive was to stabilise the banking industry internally first and prepare banks to reach a level where complying with global initiatives meant leveraging implementation efforts previously been invested in local measures.
RBI’s visionary role in strengthening the financial stability of India’s banking sector is not only evident from the regulatory roadmap definition methodology, but also by an understanding of the technological hurdles banks might have been facing at the time. Let’s take the example of RBI’s Automated Data Flow (ADF), which mandated every bank in India to generate and submit reports to the RBI by automating the data flow from source to submission. RBI not only provided the compliance guidelines but also specified how to go about it via an exhaustive approach paper. This helped stabilise the banking industry internally and prepared the banks for larger global initiatives by leveraging the local implementation efforts.
On the other hand, BCBS 239 (only applicable to G-SIBs), which was published after ADF, was a set of 14 brilliant principles, but sans an approach note. BCBS 239 is a landmark regulation to usher global banking stability, but currently applicable only to the G-SIBs. Just like RBI’s ADF, BCBS 239 too would help the G-SIBs to comply with many other future regulations such as Basel III, Stress Testing, etc. But could the principles, without an approach methodology be absorbed by small/mid-sized localized banks? This is where the RBI took a quantum leap forward by providing the vital approach note.
Fintellix’s new white paper analyses the Indian regulator’s vision by using Automated Data Flow (ADF) as an example, and illustrating how it helped Indian banks lay the foundation to becoming ‘compliance-proof’.
Do read the whitepaper at http://www.fintellix.com/pdf/WhitePaper/FutureproofingComplianceLessonsforGlobalBanksfromaVisionaryRegulator.pdf.