PwC Luxembourg : New regulation to hamper Luxembourg banks’ profitability
“Banana Skins” poll identifies top threats to banks
Regulation is about to increase the workload of the whole industry and may thus lead in the concentration of the sector
Emmanuelle Henniaux, Banking Regulatory and Risk partner at PwC Luxembourg
The heavy volume of new banking regulation since the global financial crisis and the accompanying political backlash against banks could damage the banking industry and hold back the global economic recovery, according to a new banking risk survey.
The CSFI’s biennial Banking Banana Skins survey, produced in association with PwC, puts regulation and political interference at the top of the list of 28 possible risks to banks. The poll is based on responses from more than 650 bankers, banking regulators and close observers of the banking industry in 59 countries. In Luxembourg, 35 players from the banking industry, including CEOs, risk managers and compliance officers, shared their views on potential risks.
Onerous regulation could slow the profitability of Luxembourg banks
The responses from Luxembourg participants shared global concerns about the compliance costs of overly prescriptive regulation and political environment, and the resulting harm to banks’ outlook for profitability. The perceived difficulty of adapting to the new rules also drove the risk around change management high up the ranking, as well as making strong oversight in boardrooms a tougher proposition.
Some participants noted the fact that smaller players, in particular in Luxembourg, were seen as at risk. "Regulation is about to increase the workload of the whole industry and may thus lead in the concentration of the sector", says Emmanuelle Henniaux, Banking Regulatory and Risk partner at PwC Luxembourg.
Other concerns include:
- Corporate governance - Boards finding it difficult to cope in the face of increasing complexity in the sector and regulation.
- Sales and business practices -A high risk because business practices need to be improved. Bad practices will be closely scrutinised.
- Shadow banking – shadow banks are seen as significant potential competitors given lower regulatory costs, but more importantly they are a major risk to the system in some areas due to lower regulatory standards.
The poll shows that concerns expressed in earlier surveys about management incentives, quality of risk management and technology have begun to ease.
“Surprisingly, respondents didn’t place technology as a fast-rising risk though the threat of cyberattacks is potent. Cybercrime is a problem which can only get bigger and costs banks heavily both financially and reputationally,” says Emmanuelle Henniaux.
“There are encouraging signs in this survey. Case in point: the quality of risk management seems to have generally improved after lessons learned from the crisis, adds Rima Adas, partner, Banking Leader at PwC Luxembourg. The concern about the decline of profitability needs to be taken seriously. Onerous regulation could slow profitability during a time when the banks’ contribution to the global economic recovery is most needed.”
The Banking Banana Skins Survey is available on PwC Luxembourg’s website.
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