The end of the last decade was marked by new regulatory challenges, caused by the transformation of the banking ecosystem and the risks inherent in its evolution. Supervisors in this sector have sought to guarantee consumer protection, respond to new technologies and address a changing political landscape.
Banks are facing a substantial amount of regulatory challenges, including the convergence of regulations, data protection, operational resilience, credit quality, capital and liquidity building, and financial crime.
In this article, we’ve put together a summary of the key news surrounding banking regulations and standardizations in 2019, and their outlook over the next few years.
Big changes in 2019
Open Banking and PSD2
Open Banking is closely linked to the new Payment Services Directive (PSD2). Since 14 September, 2019, banks have been obliged to open access to payment accounts via Third Party Providers (TPPs). This provides banks with plenty of exciting opportunities to form partnerships and be part of wider ecosystems, but it also means they have to reinforce their security with the implementation of strong authentication procedures.
Throughout 2019, the EU actively rolled out SEPA Instant Credit Transfer (SCT Inst), with 51 percent of PSPs from 22 countries already participating in the scheme. SCT Inst enables money to be transferred in real time (in less than ten seconds) from one Euro-zone account to another, 24 hours a day, 365 days a year. The maximum amount that can be transferred is currently 15k euros, but that will increase to 100k euros in July 2020.
SCT Inst is currently not mandatory, and its rules only apply to participating banks; however, it might not be long before it replaces the classic SEPA Credit Transfer.
Financial crime & geopolitical change
The money laundering and terrorist financing (amendment) regulations 2019 (MLRs) came into force on 10 January, 2020, updating existing regulations.
The overriding objective of these new regulations is to harmonize the rule in the EU zone and increase collaboration among European countries. Furthermore, previously neglected subjects such as cryptocurrencies are now being taken into account.
For banks, these regulations will mean strengthening risk assessment obligations and establishing clearer transparency. However, any money service business that isn’t registered to the new regulations will not be able to carry out relevant activity.
Looking ahead to 2020 and beyond
Request to Pay
Request to Pay (RtP) is a new practice that affords consumers and businesses alike greater flexibility when it comes to making payments. It enables a payee to take the initiative to request a payment from a payer, includes all the elements needed to trigger a payment and adds value to the end-user experience. While RtP is not yet a regulation as such, it is a streamlined service that could be a game changer for banks in terms of customer experience, and certainly an accelerator for Instant Payment and Open Banking. The rulebooks for RtP and Electronic Invoice Presentment and Payment (EIPP) will be published in November 2020.
Any financial institution performing correspondent banking will be forced to migrate to new standardized format ISO 20022 over the coming years. In the short(ish) term, ISO 20022 must be adopted by November 2021 with TARGET infrastructure consolidation. Looking further ahead, the new format will cover SWIFT credit transfers from November 2021 to November 2025. This standardization is likely to make old and new processes more automatic, improve processing quality and facilitate the development of new services.
The end of LIBOR
After over 30 years of the London Interbank Offered Rate (LIBOR) being the benchmark interest rate for investors and banks, new benchmarks have been and continue to be introduced in different locations. Among those are the TONAR in 2017 (Japan), the SARON in January 2018 (Switzerland), the SOFR (USA), the SONIA (UK) in April 2018 (UK) and the SARON in January 2018 (CHF).
The new overnight Eurozone monetary reference rate €STR (Euro Short Term Rate) was published by the European Central Bank on October 2, 2019 to replace the EONIA (Euro Overnight Index Average), which will be entirely phased out on January 3, 2022.
(To read more about the specific impact this will have on the American market and our response, please check out this article.)
The regulatory reporting constraint continues to grow in Europe in 2020 with the EBA reforms: ORR in Q1, FINREP in Q2 and Funding Plan Remuneration in Q3.
The next five-year reform of the ECB will affect the French national reporting, SURFI, which will become RUBA by 2020-2021.