The African Banks Of The Future Needs To Respond To Multiple Pressures, KPMG Report Says
31 March 2016 – The latest edition of KPMG’s Evolving Banking Regulation report looks at the Sub-Saharan African (SSA) markets and banks operating within the region and focused on the regulations that are driving changes for the African Bank of the Future operating business models. The report also identifies key challenges banks will face in relation to meeting the needs and expectations of customers, investors and regulators.
Globally, regulatory reforms intended to improve the resilience of banks and markets, make banks resolvable without recourse to public funds, and increase the intensity of supervision on Systemically Important Banks (SIBs) have begun to take shape. There has been a relentless march by regulators across the globe to prevent future systemic failures by strengthening financial institutions themselves, and the markets they operate in as a whole.
According to Thierry Mbimi, Partner and Head of Financial Risk Management for KPMG in Nigeria and a leader in KPMG’s Centre of Excellence on Regulation in Africa, “As a result of this we have seen a host of new regulations and modifications to existing ones. However, in SSA the challenges and opportunities are a little more diverse. Therefore, to gain insight into the possible regulatory landscape that African Bank of the Future will face, we considered regulations that already exist across different jurisdictions of the world, as well as those regulations that are likely to be issued over the short to medium term in line with the peculiarities of the SSA environment.”
KPMG is of the view that for banks’ continued survival and performance, these regulations will typically be focused on the following critical areas, including; Liquidity and Capital, Customer and Markets, and Governance and Supervision.
“While different jurisdictions within SSA are at different stages of regulatory sophistication, the liquidity and capital adequacy considerations will be covered by the implementation of Basle 2 and 3 standards within the short to medium term, as well as a focus on the requirements and preparation for the roll-out of Basle 4 in the longer term,” says Alison Beck, Partner and Head of Financial Risk Management in KPMG in South Africa and a leader in KPMG’s Centre of Excellence on Regulation in Africa. “However, in the customer and markets arena, privacy rules - which currently are virtually non-existent in most of Africa - and consumer protection mandates will become more dominant. In addition to these, we also foresee major focus on the definition of regulations on the use and sale of complex and semi-complex products like derivatives and other related products.”
Further to this, governance and supervision are key areas of improvement as capacity building among regulators is further adversely compounded by the fact that regulators usually have tool and infrastructural limitations. “To address this, some African regulators are beginning to place more emphasis on recruiting industry veterans who have the requisite skill for effective supervision. This will ultimately raise the standards of regulatory supervision and oversight within the industry and put banks to task as they will need to up-skill to ensure they are compliant,” states David Leahy, Partner and Head of Governance, Risk and Compliance for KPMG in East Africa.
Linked to the increasing sophistication in regulatory requirements, KPMG believes that this will push investments in automation and IT infrastructure in general. “Besides the implementation of Basel 3 and its later versions, effective monitoring of money laundering will require advances in data management, capable of supporting monitoring and reporting,” Nicky Kingwill, Associate Director, Financial Risk Management in KPMG South Africa.
Looking to the African Bank of the Future, the increase in foreign direct investments into frontier markets makes them vulnerable to economic downturn in foreign jurisdictions as well. To mitigate these risks, regulators will need to periodically reconsider changes in their sectors and the macro-economic level to redefine changes needed in key regulatory frameworks. Bank regulators will also need to pay further attention to the resolution of systemically important banks in their regions - and towards overall financial stability in the event of a resolution.
“SSA is certainly in an evolving regulatory landscape and the implications of these ongoing regulatory changes or implementations are far-reaching. Amidst concerns that the impacts of these regulations may begin to stifle the host economies, we expect that over the next few years there will be a further rash of regulations from industry regulators and especially for ‘fairly large’ markets in Africa – such as Nigeria for instance. However, we want to encourage government and industry regulators, alike, that when looking at formulating new regulations or making modifications to existing ones that they continuously give consideration to the rate of investment and growth in their jurisdictions, so as to not stifle these and make conscious attempts to design rules that will also work for the African Bank of the Future,” concludes Thierry Mbimi.