The retail banking industry is evolving at an exponential rate. From growing customer expectations and and shifting demographics to increasing regulatory requirements and disruptive technology, the forces reshaping the industry are coming from all sides, argues Donald Ross

The consequence is that within a decade, retail banking will look very different to its present incarnation. The banks who are able to sucessfully navigate the complex industry landscape will be those who are able to simplify the decision-making process, enabling better choices to be made in response to almost continuous change. That said, less than 20% of executives feel well-prepared for the future.

Technology has a central role to play here. A case in point can be found in the compliance and regulatory challenge the industry faces, and which has become a fundamental operational focus for banking institutions since the global financial crisis of 2008.

As concerted efforts continue to be made to restore public faith in banks and ensure greater resilience in the banking system to reduce the risk of repeat crashes in the future, technology can ensure that compliance projects both satisfy regulators and enable banks to run better.

Strengthening accountability
One important area set to have far reaching implications for the sector is the new Senior Managers and Certification Regime (SM&CR). The regulation, introduced by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), will attempt to combat breaches in the future and tackle the behavior and culture in banks that is widely viewed to have contributed to the 2008 crisis.

Set to come into force on March 7th 2016, the new SM&CR regulation places greater accountability on senior managers by holding them responsible not only for their own actions, but also for the shortcomings of all employees involved in regulated activity or whom the regulators view as performing a "significant harm function".

The regulations will therefore impact not only senior managers, but almost every level of personnel; consequently, banks must now take on the primary responsibility for regulating their own workforce and face a dramatically enlarged pool of employees to be monitored and certified as ‘fit and proper’ on an annual basis.

With strict documentation also required to record the allocation of responsibility to individual senior managers, banks will now have to be much more stringent in the way they track and report to ensure that accurate data is available on demand to satisfy the FCA.

Significantly, the regulations will also reverse the ‘burden of proof’- meaning that individual senior managers will be presumed responsible until banks can demonstrate that all reasonable steps to avoid a breach were taken.

In this way, the new SM&CR will impact the fundamental operations of banks and is an area in which technology can play a significant role in driving compliance. Crucially, with less than 12 months to put measures into place and the threat of a potential 7-year jail sentence, plus unlimited fines for banks, the stakes have never been higher.

Legacy issues
A key challenge faced by banks is that posed by legacy IT infrastructure which does not take advantage of the management and data analysis systems available. Banks cannot simply ‘bolt on’ new offerings to legacy processes and systems, as these are no longer reliable or agile enough to support new and constantly evolving industry requirements.

Rather, adapting to the compliance burden requires significant remodeling: simplifying existing systems and introducing new technologies is crucial to reduce the risks associated with the new SM&CR and the ever-changing regulatory landscape as a whole. One of the ways in which forward-thinking banks are starting to achieve a more agile way of operation is through cloud computing.

Banking in the cloud
With the technology burden being carried by the service provider, enabling banks to work around the limitations of their own systems, a cloud delivery model offers simplicity, speed, and cost savings to processes that were previously on premise.

By modernising and transforming older back office systems, banks can in this way create a flexible and agile banking environment that can quickly respond to new business needs, enable more interactive collaboration, and provide senior managers with a holistic view of their business.

Cloud HR applications, for instance, can enable firms to take a single view of employees throughout their lifecycle with the bank, critical given they are to be vetted annually under the SM&CR, and any disciplinary action reported to the regulator.

These applications can also include, performance and goal managament solutions that can enable banks to record decisions and communicate goals to the employees responsible for their delivery. Learning and assessment management tools, which allow managers to provide certification, record proof, and demonstrate the validity and reliability of high-stakes tests. Lastly, social technology platforms, enable employees to solve problems collaboratively, build consensus and improve decision making.

Cloud computing is also a key enabler of Big Data analytics, allowing information to be adequately stored in the cloud and retrieved in near real-time. Combined with a single platform across all silos, this would allow banks to base regulatory reporting and real-time business decisions on reliable information from a single source of truth.

The missing link
Its no secret that the banking industry has traditionally been slow to adopt technology. Despite broad uptake in other industries, only 16 per cent of banks had rolled out cloud computing in 2014. Yet agility is crucial to navigating the modern compliancy landscape.

The current regulatory drive is more than just an initial storm in response to the 2008 crisis. The demands, such as shifting customer expectations, that have brought us to this point will remain, but also continue to evolve.

Moreover, simplified systems which can effectively leverage cloud and Big Data technology will equip executives with critical business insights of value beyond easing the compliance burden.

Today’s banks are awash with data, and technology is enabling them to access this information more quickly and in a way that provides real time insights. This paves the way for better decisions, based on more accurate, precise and instructive information, and can help banks remain competitive.

Staying relevant in today’s financial climate may require more than a superficial makeover and banks that prove successful over the next decade are likely to look very different to those that flourished pre-2008. From e-banking to micro-credit success stories, this is an industry in which technology is truly enabling a re-imagination of traditional practices and agile, simplified delivery. At the same time, the age-old requirement of banking organisations – trust – is once again a focus. Banks, large and small, need to reestablish that trust and the need to do so creates an opportunity for new market entrants.

But with the right systems and analytics in place, banks, new and old, have never been in a better position to make the right decisions today and in the future.