Rick! What does financial reform have to do with customer experience? Well quite a bit according to a talk I attended put on by Novantas that was led by Iain Anderson and Tim Gieles of Cicero.
The European Commission is moving forward with a combo version of Basel 3 and the Euro Dodd-Frank financial overhaul response. I am going to simplify this to some high level implications that could become policy later this year or early next year.
First, the regulatory structure of financial services will change to have more dedicated oversight by the European Systemic Risk Board (ESRB) and new sub-boards for banking, insurance, and asset management.
Second, there are two major capital implications which have the potential to change the relative global competitiveness between European Union and non-EU financial services. These are providing capital for “cyclicality”; in my words ensure you have beefed up capital in advance of the need for it and the potential for doubling up capital requirements for banks that also have insurance offered.
While I could delve into the all the legal stuff, my key take aways were about how the changes might impact a global customer (i.e. of HSBC, Santander, Chase, or Bank of America) or a customer who had the option of where to have a specific financial service provided.
In banking, the provisions are mainly about capital, therefore impacting balance sheet management and in the short-term the need for profits. There are also provisions that increase transparency of underlying securitization risks.
Insurance provisions will also add insolvency tests requiring banks with insurance product a potential capital raising nightmare depending on the solvency test requirements and the outcome of quantitative studies. The potential impact could go beyond capital to unbundling solution sets for banks such as Santander that will have to decide whether or not insurance in a higher solvency standard environment stays or goes.
The biggest game changers are potentially in the asset management area. Still under discussion are whether the “passport” provisions making it easier for foreign fund managers will be maintained or reduced. There are also provisions for a European collective investment in transferable products improving within EU fund management competitiveness. Additional provisions are also in the pipeline for significantly improved fund manager transparency (also called the Bernie Madoff prevent provisions). Additional reforms are likely to stop “dark pool” investments by requiring all derivative activity to go through central counterparty clearing. Credit default swaps and short selling are also likely to get added controls and limits.
I’ve simplified a very complex discussion, but hope you can read between the lines and ask the Service Profit Chain question. How will the magnitude of these changes impact our customers and the ability of employees to engage with them in a no hassle way? I personally suspect the challenge will be greatest with the higher profit per unit customer in wealth management and commercial and result in some level of EU/non-EU competitive differentiation.
It’s time to be proactive and understand the execution implications as the story unfolds the rest of this year.
If you need get in touch with Cicero.
PS. A special thanks to Kevin Travis at Novantas for hosting this event.
