Since Metro Bank opened its doors back in 2010, the UK banking market has seen an ongoing tide of new names being granted authorisation by the regulators.
This increase in the number of firms has seen many different approaches from those differentiating themselves from a technological perspective – app-only for example – or offering traditional banking services but oriented towards a specific demographic or industry niche.
However, all of this innovation and disruption is underpinned by imperatives common to all financial institutions, one of which is regulatory reporting.
The evolution of a challenger bank means that its regulatory requirements will change as it moves through its application process and beyond. During the mobilisation phase, modest requirements usually mean that only a light, tactical solution is required. However, when full authorisation is granted, business ramps up and full reporting requirements come into force and potentially increase. At this point, the need for a regulatory reporting platform capable of strategic growth to something that is fully automated, operationally robust and scalable becomes essential.
The majority of challenger banks are ‘technological greenfield sites’, meaning a lack of encumbrances that are associated with legacy platforms and the freedom to design an optimal software infrastructure for the organisation. However, the lack of existing software solutions can be a double-edged sword. Why? Because of the lack of data that would generally be used for the verification of new processes and the user acceptance testing of new software solutions - something that is particularly crucial when implementing a regulatory reporting platform. There’s a need for a clear and proven methodology to surmount these problems and dependable expertise to provide guidance during these processes of verification.
Decisions around the nature of deployment can also present challenges for a new firm. Not long ago, no financial institution would have contemplated trusting their regulatory data to a cloud platform, but this has changed significantly as providers have been able to demonstrate capabilities around issues such as security and performance. Challenger banks can certainly benefit from a partner who can support a range of on-premise and cloud deployment options, allowing for the discussion of the relative benefits of these approaches and ensuring that a firm’s preferred technology strategy is accomplished.
Perhaps the most onerous imposition on the inevitably stretched resources of a challenger bank is the necessity of keeping up with regulatory changes.
A solution that offers the automatic provision of updates and a vendor that provides guidance in this area will result in drastically reduced effort on behalf of the reporter, freeing up restricted bank resources whose expertise is more profitably spent in other areas. If an institution employs a strategic regulatory platform rather than a collection of point solutions, this will reduce the impact of regulatory change even more as it will allow reuse of data across regulators and returns.
The effort involved in setting up a challenger bank is, needless to say, considerable – I was shocked when I first saw an example of a licence application. I guess I was expecting the PRA equivalent of a gym membership form but was confronted by several crates full of documents. However, despite the obstacles to be overcome – only some of which are outlined above – we are starting to see the innovative thinking and hard work in this area start to bear fruit for a number of institutions and can expect to see many more organisations entering the market in the coming years.
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