Tuesday, 22 August 2023
Monde Economique by Achille Deodato, CEO of Indigita SA
In the realm of global finance, the past decade has witnessed a steady surge in regulatory measures aimed at safeguarding investors and bolstering governance, transparency, and market stability. Switzerland, a financial hub renowned for its banks and asset management expertise, faces a specific challenge due to its substantial exposure to international clientele. Strategic choices, such as the identification of key geographical markets or the day-to-day management of existing foreign clientele often represent a dilemma in terms of regulatory compliance, cost management and future competitiveness. In this framework, digitization can not only serve as a key enabler for keeping ahead of evolving regulations, but also to ensure the respect of applicable rules and maintain competitiveness.
The Regulatory Imperative
The recent circular on Operational risks and resilience for banks (2023/1) issued by the Swiss Financial Market Supervisory Authority (FINMA), underscores the importance of acknowledging and mitigating risks arising from foreign legal enforcement, encompassing topics such as taxation, anti-money laundering, and criminal statutes.
Swiss financial institutions are compelled to recognize and manage the risks associated with cross-border operations.
This entails an exhaustive analysis of cross-border services and product distribution, aimed at comprehending the legal framework and associated risks. The complexity intensifies when dealing with investor protection, financial services, and product placement rules, where disparate foreign regulations may exacerbate existing challenges.
The Mandatory Process
Periodically, the Board of Directors is required to evaluate a bank's international business and strategy. This process involves initially analyzing the bank's current exposure, including factors like the number of clients domiciled in each country, their deposited assets and the bank's activities when interacting with them. Following this analysis, the Board then determines the key markets where the bank should focus its efforts. Typically, the logical approach is to designate existing client-strong markets as core markets, and then designate markets where the bank's relationship managers can attract new prospects as strategic markets. It's not uncommon for a financial institution to establish a "country desk" when hiring a group of relationship managers who have a business pipeline connected to a specific country. However, what often gets overlooked in this process is a regulatory assessment of the targeted geographical area. Important questions arise, such as which activities are allowed and whether the bank can offer its specialized services or feature its range of selected financial products in that region.
To tackle this entangled maze of regulations and transform it into a business opportunity, Swiss financial institutions must leverage digitization.
The Digital Solution
Digitization is not merely about implementing controls; it also opens up new business prospects that would otherwise be difficult to identify. The crux lies in the institution's ability to navigate an ocean of regulations and scenarios and discern the optimal route to a given opportunity. This necessitates an automation-driven solution that guides financial institutions through the regulatory labyrinth, including the strategic choices by the Board of directors. Turning Complexity into Business Opportunities
The main difficulty is to transform the diverse and evolving regulatory framework into a viable business strategy. Swiss financial institutions can shift from a reactive stance of avoiding compliance breaches to a proactive approach offering avenues for sustainable growth. This results in exploring the various regulatory possibilities and identifying the "sweet spots" where compliance aligns with business prospects.
The convergence of automation, regulatory knowledge, and strategic acumen becomes the recipe for success.
For instance, let's consider a bank specializing in e-banking services or aiming to make a significant investment in a new e-banking platform to expand its operations. To illustrate, imagine setting up an e-banking platform for a client based in the EU. Deciding whether to grant e-banking access appropriately depends on factors like the client's location, meeting arrangements, and client category.
Automation has the potential to enable Swiss financial institutions to differentiate between situations where providing e-banking services is allowed and where it is not permitted.
By actively assisting professionals in navigating the available choices within defined limitations, digitization can turn regulatory hurdles into opportunities. Equipping an organization for the Future
National and international regulations are intertwined and pose both challenges and opportunities for Swiss financial institutions. Employing sophisticated systems and digital tools that transcend the role of mere blockers and function as enablers becomes a vital part of an organization’s long-term strategy. With digitization as a strategic ally, Swiss financial institutions will be able to confidently navigate the uncharted waters of global finance, as they reap the benefits of their investment in innovation.