Navigating Regulatory Changes in the Financial Services Industry in 2024

Introduction

Ambition is found in spades in the finance industry, particularly in fintech start-ups. However, ambition must be tempered with compliance with finance industry regulations – the recent turbulence with Paytm, an Indian fin-tech unicorn, is a prime lesson on this.

After a system audit report and compliance validation report, the Reserve Bank of India (RBI) initiated strict action against Paytm. It later imposed further curbs, preventing Paytm from operating its mobile wallet after February 2024.

India’s Union Minister, Rajeev Chandrasekhar, emphasized that financial regulatory compliance cannot be “optional”. Instead, it must be treated as essential.

Against the tide of economic uncertainty and geopolitical turmoil, the year ahead is likely to come with challenging regulatory changes.

Sarah Breeden, Deputy Governor for Financial Stability, Bank of England, notes: “We have seen unexpected political and economic headwinds and it seems prudent to assume more will come. With unexpected headwinds and limited bandwidth, longer-term issues can end up deprioritised. Issues do not though go away – quite the opposite, they build in the background.”

Companies should take the opportunity to review where they stand on compliance and identify areas that need further expertise and focus.

In this article, Silverskills shares the financial regulatory outlook in 2024 and strategies to adapt to regulations.

Drivers of Regulatory Changes in 2024

A combination of long-standing interests and recent developments are shaping this year’s finance industry regulations.

• Financial service regulators are being challenged by economic and political issues. Various high-profile bank failures, such as those of Silvergate Bank, Silicon Valley Bank, and Signature Bank, have led to heightened scrutiny of financial service companies.
• Changing standards, such as Basel III in banking, are encouraging regulatory shifts to meet international expectations.
• An unstable economic outlook, marked by inflation and rising energy costs, might lead to increased consumer debt. Furthermore, it raises questions about asset quality.
• The possibility of increased financial segregation looms, brought on by the war in Ukraine, conflict in the Middle East, and deteriorating diplomatic relations between China and the US.
• Evolving technologies are prompting the birth of new regulations to address cybersecurity and fintech innovations.
• Amidst all this, firms are still required to mold their business models according to the needs of individual markets.

Financial Regulatory Outlook 2024

With the gears of change turning rapidly, it has become crucial for accounting professionals to focus on transparency and accuracy in adhering to finance industry regulations. In today’s world, regulatory compliance has become a strategic imperative to remain competitive in a landscape of increasingly complex regulations.

The following points will cover the broad strokes of the 2024 global financial regulatory outlook. Note that some may apply only to certain countries or regions, while others will be more universal.

Digitalization in Finance

Digital transformation has gone from a cutting-edge concept to an ordinary operation for businesses across the world. That being said, many firms struggle with successful digitalization, leading to greater scrutiny from regulators.

This year, we can expect regulators to continue raising the bar of digital resilience and tackle heightened operational reliance on third-party providers, new technologies, and reliance on IT systems. Deficiencies in cyber risks, IT outsourcing and security, and data governance will be required to be reduced.

Preparing for Basel Reforms

Banks will need to meet the requirements for the Basel III reforms.

Implementation will involve assessing capital impacts and interpreting regulations. It will provide ample opportunity for requirements for data, reporting, and technology, as well as balance sheet optimization.

Differences in local approaches will increase complexity for institutions operating across the US, UK and EU.

Focusing on Company Culture

Company culture and compensation are being increasingly recognized as significant factors that influence decision-making.

Organizations will be pushed to reconsider how their incentive and performance structures operate, and whether fiduciary duties and stakeholder goals align.

Some questions firms will need to pose about oversight include:

• Is the board up to date with the evolving regulations it must meet?
• Does management information (MI) balance comprehensiveness with simplicity?
• What corporate culture is the board aiming to create?
• How do reward and remuneration reinforce – or negatively affect – the culture?
• Are relevant training programs implemented?

Improving Attractiveness of Public Equity Markets

To enhance the attractiveness of public capital markets in the EU, legislators are charging to agree on finalizing the Listing Act.

This is meant to simplify listing requirements, including post-listing. With it, EU companies will be able to reap the benefits of going public, such as greater growth, access to a wider investment base, and job creation.

Finalizing the Listing Act is part of a broader discussion on expanding investment research that covers smaller enterprises and midcaps.

Regulating AI Technology

Remaining in Europe, we turn to the AI Act, which is claimed to be the first comprehensive legal framework on Artificial Intelligence (AI) in the world. The act was developed in response to the adoption of AI across various industries.

The act takes a risk-based approach, categorizing AI applications based on their risk profile. This is supplemented with a particular regime for generative AI and large foundation models. The rules are expected to be phased in from early 2025.

Financial service firms must ensure that their AI applications comply with the Act’s provisions, including robust data governance, algorithmic transparency, and safeguards against discriminatory practices.

Additionally, they must establish mechanisms for ongoing monitoring and assessment of AI systems to detect and mitigate any potential risks or biases.

How Can Companies Adapt to Regulatory Changes?

Effective regulatory compliance management is a key pillar of corporate responsibility. Companies can better navigate changing finance industry regulations by taking the following steps:

• Maintaining a thorough understanding of current and upcoming regulations. Many firms turn to leveraging regulatory compliance consulting and intelligence platforms for this.
• Carrying out regular risk assessments and prioritizing risk mitigation strategies accordingly.
• Developing a strategic compliance plan that determines how your company will address changes in regulations. This plan should include staff training, resource allocation, and investments in technology.
• Implementing compliance monitoring systems to oversee financial regulatory changes, assess your company’s compliance status, and identify and address gaps in the same.
• Creating clear communication lines with legal teams and compliance officers to understand changing obligations.

Conclusion

Finance regulations need to remain in a state of constant motion to keep up with the changing times and adapt to the demands of consumers. Regulators will prioritize as they determine approaches to navigating digital and green transitions amid geopolitical uncertainty. Firms must comply accordingly.

In the coming years, there will be no shortage of finance industry regulations to comply with. Silverskills can manage and automate your processes with our finance and accounting services so you can focus on your business and regulatory compliance.

With Fortune 500 companies and SMEs as our clients, we have established thought leadership across the whole finance value chain. Fuel the next level of exponential growth with our digital finance knowledge base.

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