Frontiers in Finance - Your next move
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Frontiers in Finance - Your next move

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Responding strategically to regulatory reform in financial services

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Published 01 June 2011
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Language English
Document size 6 MB
frontiers in finance for decision makers in financial services April 2011 Featuring: setting the pace on the regulatory agenda KPMG’s Financial Services Regulatory Centers of Excellence fatca A looming challenge too big to fail? Recovery and resolution planning in the US Your next move responding strategically to regulatory reform in financial services insights / foreword scott Marcello regional coordinating Partn er We spent much of the last issue of advice and service. To this end, we financial services Americas regionFrontiers in Finance trying to understand have created three regional Financial KPMG in the USthe potential impact of regulatory Services Regulatory Centers of t: +1 614 249 2366 change, the impact of IFRS on Excellence – one each in Asia Pacific, e: smarcello@kpmg.com insurance contracts and the banking Europe and the Americas – to draw sector and measures to tackle the together our regulatory expertise and critical issue of systemically important focus it on supporting our firms’ clients. simon Gleavefinancial institutions (SIFIs). It will come A note on this initiative kicks off our Joint regional coordinating Partner as no surprise that regulation is once special regulatory feature in this issue, financial services again one of our features. with other articles looking at the Aspac region However, the emphasis is changing. impact of FATCA, insurance regulation, KPMG in China t: +86 10 8508 7007As policymakers and regulators get Solvency II and Basel 3. We also update e: simon.gleave@kpmg.comto grips with the challenges – and the SIFI debate with a view on recovery dilemmas – of framing new controls and resolution planning in the US. for the global financial system, they The theme for this edition is Your are finding that it’s not as easy as it next move. We explore the key issues Hugh von Bergen Global Head of taxseems. On the other side of the fence, companies need to consider when financial servicesembarking on major change. Debt sales financial services firms are realizing KPMG in the UK and real estate investments are both that regulatory change will not only t: +44 20 7311 5570 bring costs and burdens but also asset classes whose attractiveness has e: hugh.von.bergen@kpmg.co.uk opportunity. As Jeremy Anderson been fundamentally upset by the crisis; argues in his keynote article, smart we look at how they are faring now. companies are already looking at how I hope you find this issue of to strategically turn the new regulatory Frontiers of value. Wm. David seymour environment to their advantage and Global sector Leader become best in class. investment Management KPMG in the USKPMG firms pride ourselves on t: +1 212 872 5988bringing clients market-leading analysis, e: dseymour@kpmg.com Jonathan thompson Global chair Building, construction and r eal estate KPMG in the UK t: +44 20 7311 4183 e: jonathan.thompson@kpmg.co.uk alison Halsey Editor, Frontiers in Finance Partner, KPMG in the UK Frontiers in Finance / April 2011 Frontiers in Finance / April 2011 / 45 © 2011 KPMG International. KPMG international is a swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG international. KPMG international provides no client services. no member firm h as any authority to obligate or bind KPMG international or any other member firm vis-à-vis third parties, nor does KPMG international have any such authority to obligate or bind any member firm. all rights reserved. In this issue For your information fyi… 24 Topics Looking out for opportunities: Uncovering your strategic advantage 4 Seizing opportunities: Current trends in the debt sales market 8 Looking out for opportunities: Real estate as an asset class: Is it core to an investment portfolio? 12 Uncovering your strategic advantage Patchwork: Bank taxes and levies 16 8 Financial Services Regulation feature Setting the pace on the regulatory agenda: KPMG’s Financial Services Regulatory Centers of Excellence 20 Too big to fail? Recovery and resolution planning in the US 24 FATCA: A looming challenge 28 Seizing opportunities: Evolving Insurance Regulation: On the move 32Current trends in the debt sales market Basel 3: Time for banks to engage 36 Keeping ahead of the curve: Solvency II and the new IFRS for insurance contracts 40 20 Insights Updates from KPMG member firms, thought leadership and contacts 44 Setting the pace on the regulatory agenda: KPMG’s Financial Services Regulatory Centers of Excellence 24 36 Too big to fail? Recovery and resolution planning in the US Frontiers in Finance / April 2011 / 1 © 2011 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. / For your information fyi... Speculation that the economic downturn would not have occurred had there been more women in the world’s boardrooms has prompted heated discussion about Women at gender balance. Recent evidence suggests that groups with a better the top... gender balance are not only better at decision-making but also more profitable. Research from the consultancy Catalyst found a correlation between those companies with the highest representation of women on their corporate boards and those with higher equity returns. 8 March 2011 marked the 100th anniversary of International Women’s Day – a day when countries around the world celebrated economic, political, and social achievements of women past, present and future. www.internationalwomensday.com Source: www.catalyst.org Bank funding gets put under New insurance standard could the microscope ‘down under’ lead to a change in products Under proposed new accounting Since 2008 Australian banks have found rules, insurance companies may the liabilities side of their balance consider moving out of longer-term sheets coming under unaccustomed products and focusing on offerings scrutiny. How banks fund their lending where policyholders bear more and trading activities is high on the investment risk. agenda of Governments, regulators, That’s the view of CFOs and shareholders and customers. senior finance personnel from the The global financial crisis exposed world’s leading insurance companies, the heavy reliance of Australian banks following a series of high-level on offshore capital markets funding. discussions with accounting firm While this has never been a secret, KPMG. its significance has been overlooked. are being influenced by offshore The dependency on offshore funding, interest rate levels and, potentially, as distinct from domestic deposits, country risk premiums. Note: For the full report please go is a means of transmitting instability www.kpmg.com.au to the Financial Services pages on elsewhere to an otherwise healthy www.kpmg.com banking system. It’s becoming more Source: Australian Centre for Financial Studies and KPMG Monograph apparent that domestic borrowing costs – The Future of Australian Bank Funding, March 2011 2 / Frontiers in Finance / April 2011 © 2011 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. / For your information Social media A numbers guide The numbers highlight the impact that social media is having across Funds industry in Ireland the globe. 30bn pieces of content (e.g., links, Ireland is one of the world’s largest professionals specializing in legal, photos, notes) are shared jurisdictions for the establishment and accounting and consulting services, on Facebook each month servicing of internationally distributed Ireland is home to 47 world-class investment funds. fund administration companies and The Irish funds industry offers a 18 trustee/custodians who provide complete range of services including a support structure of over 11,000 53% fund set up, structuring and listing, industry professionals. of American Internet users fund administration, depositary and Ireland boasts one of the most look for information on transfer agency services, compliance, competitive and high quality service Wikipedia, up from 36 percent consultancy, tax, audit and legal environments across all the leading in 2007 services. With an experienced and fund centres. substantial network of industry 50% of US CMOs at Fortune 1,000 companies said they launched a corporate blog Upcoming because ‘it’s the cost of doing business today’ $3.08bn will be spent to advertise on social networking sites in June 19–June 22 2011, a 55 percent increase over 2010 International Insurance Society Conference 200m Fairmont Royal York, Toronto registered accounts on www.iisonline.org Twitter as of January 2011 June 28–June 30 110m Fund Forum International tweets are sent per day on Twitter Grimaldi Forum, Monaco www.icbi-events.com/fundforum Source: www.banking2020.com KPMG 25% discount code: VIP FKN3A47KPMGPDF Frontiers in Finance / April 2011 / 3 © 2011 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. / Topics Change always creates opportunity. The trick is to identify it. 4 / Frontiers in Finance / April 2011 © 2011 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. © 2011 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. / Topics Looking out for opportunities Uncovering your strategic advantage The burden of regulation grows; at some times it seems exponentially. In the wake of the crisis, change is inevitable. New regulations are stretching the resources of financial institutions around the world and can be a major disruption to business. But all disruption has its upside. The changing regulatory landscape will open up all sorts of opportunities to extract unforeseen benefit and advantage. The smart companies are already looking at how to turn the new Jeremy Anderson environment to their advantage. which may look more like a regulated Moving on again utility than the dynamic, competitive Attitudes change quickly in response to industry we knew before the crisis. a crisis, particularly in a highly global and inter-connected industry like financial And in response to this, we’ve been services. One month’s insight rapidly warning of the dangers to economic becomes next month’s cliché. We are growth and competitiveness of over- already taking for granted that regulation zealous regulation. and oversight are going to be stricter; Financial services play a crucial role that most financial services operations in wealth creation, individual liberty are going to be more constrained; that and social development. It is right margins could be depressed for a that we in the industry should seek significant period. This is the reckoning to defend it against prejudiced and all global financial services face. counter-productive proposals. In recent issues of Frontiers in And yet… while we need to continue Finance, we have been exploring analyzing and understanding the details, the potential impact in a number of we also need to start developing a directions. First, of course, we have more positive attitude: how can financial been trying to understand what it is institutions identify opportunities that global, regional and national emerging from the new regulatory regulators are trying to achieve with environment, and implement profitable their proposed changes and how these change? How can you achieve will work in practice. That process operational, organizational and service excellence – ultimately strengthening continues in this issue with a major your position in this challenging context? feature on regulatory developments. Second, we’ve been trying to sketch When the environment offers lemons, out a future financial services sector how best to make lemonade? Frontiers in Finance / April 2011 / 5 © 2011 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. / Topics All in it together The first point to note is that any particular regulatory environment is common to all similar institutions. While the individual details of impacts vary, in broad terms every firm will be in the same boat. Almost by definition, then, there is the opportunity for those who move smartly and rapidly to open up a lead on the competition. Organizations need to see the opportunity they can exploit in the regulatory constraints and economic environment that they currently face. Change always creates opportunity. The trick is to identify it. While the individual details of impacts Business modelsvary, in broad terms every firm will be The second issue is strategic. At KPMG, in the same boat. we have been looking hard, both in Frontiers and in individual specialized publications, at the potential impact of regulatory change on companies’ business models. As long as uncertainty remains, it may seem premature to embark on definitive re-shaping of a company, withdrawing from some product and market sectors, say, or refocusing into other territories. But companies are constantly reviewing and revising their strategy in the light of new market conditions, new competition, changing customer expectations and the evolution of technology. Just as few companies compete head-to-head with exactly the same business model, so there will be few which need to respond in exactly the same manner to changes in the regulatory framework. But the broad changes to regulation are clear. Financial services providers which react decisively can gain advantage. 6 / Frontiers in Finance / April 2011 © 2011 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. / Topics The opportunities will be there. With the right frame of mind they can be identified and exploited. Operational benefits as there are financial services firms Nevertheless, we have to recognize A third set of issues are tactical and facing challenges – and that’s pretty that global political pressure for much- operational. If, as we believe, the much all of them. What is important, increased regulation exists, and this financial services sector is entering is to face the challenge directly and will be reality for some time. I believe a significant period of comparatively actively. Others will be doing so. it’s now time for financial services constrained returns and profitability, At KPMG, we believe that our own companies to engage constructively it is all the more important to identify creation of three Risk and Regulatory with the forthcoming changes, to actions which can cut costs, boost Centers of Excellence responds to recognize the political reality and work margins, increase flexibility and promote these challenges in two ways. First, to encourage governments to address operational excellence. of course, it creates a resource base the wider root causes of the failures New regulations will require new and center of expertise from which and minimize the potential unintended systems and processes, new data we can better support our firms’ clients consequences of the changes. recording and reporting. If these are in formulating their own responses. simply introduced as another layer of Second, it is, we hope, an illustration For more information please contact: administration and management, then of our own continuing search for they will indeed simply add to costs. operational and service excellence. Jeremy Anderson But if they can be devised in such a Global Chairman, Financial Services KPMG in the UK A positive frame of mindway that they also bring operational T: +44 20 7311 5800I was struck by the unequivocal benefits and efficiencies, companies E: jeremy.anderson@kpmg.co.uk conclusion, in the US Financial Crisis can extract net benefit. The kinds of information which regulators are Inquiry Report, that regulatory failure increasingly requiring – on customer was at the root of the crisis: segmentation, on risk assessment, “... widespread failures in financial on individual products and service regulation and supervision proved metrics – are precisely those which devastating to the stability of the nation’s can lead to a more granular and precise financial markets. The sentries were analysis of business performance. not at their posts… More than 30 years The leaders at converting data into of deregulation and reliance on self- knowledge and understanding will regulation by financial institutions… had be best placed to sustain performance stripped away key safeguards, which and profitability. could have helped avoid catastrophe.” There are many processes and We suggest the explanation is more procedures available to help companies complex; issues such as structural search for opportunities in a changing imbalances in economies, a lack of environment. Some are more formal macro-prudential oversight and over and structured than others. Some may leverage all contributed to the crisis. depend on the objective perspective Indeed the Minority Report from the of external consultants while others same Commission responds that “explanations that rely on lack of rest on the insights of those senior regulation or deregulation as a cause managers who know the business of the financial crisis are… deficient.” best. There are as many right answers Frontiers in Finance / April 2011 / 7 © 2011 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. / Topics Seizing opportunities: Current trends in the debt sales market Before the financial crisis, the global debt sales market was fairly simple. In the main, it was a matter of banks and other lenders disposing of non-core and non-performing loan portfolios to private equity investors looking to purchase distressed assets. That aspect of the market still exists. But there has also been a major boost from post-crisis portfolio reconfiguration and balance-sheet restructuring. 8 / Frontiers in Finance / April 2011 © 2011 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.