Pub. 8 2018 Issue 2

18 www.azbankers.org Figure 2: Real GDP growth and interest rates obsessed mindset to one of genuine customer centricity, and further rationalization of strategies to target the right markets, customer segments, and solutions. Although banking has undoubtedly improved in many ways in the last couple of decades, most organizations have not gone through the customer-centric transformation that other industries have undergone. With widespread digital disruption, banks may even risk losing control over customer experience. Of course many banks, global and local, large and small, have changed their market and customer strategies since the financial crisis. Many of these decisions may have been forced upon them by regulatory expec - tations, and perhaps are not necessarily grounded in a refined under - standing of markets and customers. As figure 3 shows, banks’ focus on customer experience, at least in the United States, does not appear as widespread as one might expect. Fortunately, most banks seem to have realized that a growing fintech ecosystem, once perceived as a threat, can actually be a boon for help- ing them serve their customers, both through emulation and collabora- tion. 4 Fintechs, with their laser-sharp customer focus, have shown that it is possible to meet, and arguably even exceed, customer expectations. But technology is typically only part of the solution. The core objective for most banks is to achieve organizational agility, and to do so they should consider embracing innovation, managing talent differently, and pursuing key partnerships within a broader ecosystem to manufacture and deliver solutions for customers. Regulatory recalibration 2018 presents an opportunity to modernize regulatory compliance and bring together disparate silos created for individual compliance goals. Figure 3: US banks, by type, with defined customer experience programs After a decade of intense scrutiny by regulators globally, banks seem to be sensing some stabilization. At least in the United States, new rulemaking appears to have abated. There are also signs of divergence among national regulators, who, after a period of unprecedented coor- dination following the financial crisis, appear to be pursuing paths suit - ed to regional and national priorities. For example, many global firms are dealing with varying local market needs and regulatory mandates, and more recently, with differing views on key prudential regulations, such as the still-pending aspects of the Basel III regime. 5 But expectations of a broad regulatory pullback could be misplaced. Some US regulations are being reviewed and may be amended, such as the Volcker Rule, 6 regulations around governance expectations of bank boards, and the size threshold for systemically important institutions. However, higher capital and liquidity requirements, stress testing, and recovery and resolution planning will likely remain intact. Compliance expectations, especially around fair treatment of customers and exec - utive accountability, are expected to stay elevated. Regulators are also expected to maintain vigilant enforcement programs and to demand more data from banks to test the operational integrity of complex insti - tutions—especially when under stress. In Europe, the Markets in Financial Instruments Directive II regime and proposed EU rules to establish intermediate holding compa- nies—similar to those required under US regulation—should continue to be significant priorities for global banks. Additionally, the second Payments Service Directive (PSD2) regime could have spillover effects across geographies. 7 Data protection rules, especially the General Data Protection Regulation, should further add to the compliance burdens. So how can banks operationally achieve this modernization? Consid- er integrating regulatory compliance goals—from the standpoint of ownership and accountability—with strategic initiatives such as 2018 Banking Industry Outlook w Continued from page 17