Regulatory impact on business models, what CEOs need to know.

Years of regulatory change have affected unwittingly your business model, too. CEOs can leverage this momentum to understand regulatory impact on business models and redefine strategic direction.

Executive Summary
  • Since 2008, accelerated issuance of new regulation for Financial Services and amendments of existing regulation continues to take place.
  • Regulation has significant impact on Financial Services, both on the budget and on the business and operating model.
  • The accumulation of (amended) regulation over many years creates now the momentum to assess unintended impact on business and operating model, and to use this opportunity as a catalyst for change in your business. 

10 years after the financial crisis, almost all Financial Service providers are affected by regulation with varying impacts. These impacts range from increased capital requirements to more product & service transparency to understanding your customers better, and so forth. The change after so many years is significant enough to have an unwittingly regulatory impact on business models.

Regulation and its amendments

Banks, capital markets and insurers are facing today a very different regulatory environment in which they need to operate. To continue operating under the enforced regulation (e.g. Basel I), changes were made to business models and operating models. Worth to mention that amendments on existing regulation (e.g. Basel II, III) increased impact further. This requires companies to think about whether the business and operating model, is still effective enough and if it is not holding them back to reach the company’s financial and non-financial goals. 

Evaluate impact on your Business & Operating Model

Unintended consequences of regulation

As with many things and so also in business, making changes in some areas, implies a need of revision in other areas. One saying goes, if you pick up one end of the stick you pick up the other. For example, as a bank, reducing the off-balance exposures to meet capital requirements entails a different risk and investment strategy. This is the effect of one regulatory implementation, but after many years of additional regulation, and new versions of existing regulation, it is important to take a step back to understand regulatory impact on business models and evaluate your business model (what value do I bring to my clients) and operating model (how do I bring the value to my clients).

Opportunity created by regulation

Regulation is not necessarily a constraint, its first purpose is to create stability and transparency in the financial system. It is not an “on-top-of” project, but needs to be perceived in the broader context to see how it can add value for your company. It helps creating the momentum and opportunity to explore other ways of operating your business, and allows to explore new revenue streams.

Supporting material 

A summary of European regulation for Financial Services is provided on the web page of the European Commission:

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