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CFO report: the new era of banking regulation - EY - Banking & Capital Markets - EY - Global

CFO report: the new era of banking regulation

A key role for finance and risk functions

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“It’s in the risk culture to think about the implications of investment decisions — not just single scenarios, but the possible collateral implications of those decisions. I think that’s very good training for business development, for M&A.”Todd Gibbons, Chief Financial Officer, BNY Mellon

In the wake of the global financial crisis, the finance and risk functions have gained organizational standing and are considered key to helping banks generate value.

These functions are also infusing an understanding of revenue rewards at a reasonable cost and effective capital allocation that is more holistic and in line with overall business goals.

The finance role has evolved from a service function to one that questions and guides the business to develop within the value-creation framework. The risk function offers a deep understanding of operations that is now considered essential at the board level of the banking organization to manage risk from the top down — so much so that the role of CRO is now seen as a career path to chief executive.

As the roles of finance and risk develop, they are faced with several priorities, including:

  • Increased transparency
  • Enhanced efficiency
  • Decreased complexity

All of which bring different benefits and costs to the table.

For example, increased transparency requires new reporting generated by costly IT and data investments. Greater efficiency coupled with slower growth is expected to lead to more standardization and centralization.

Additionally, banks are coming to terms with a “complexity-cost problem,” and finding ways to generate substantial savings through reducing complexity in systems, processes and administration.

Our insight

While the profiles for finance, risk and treasury have risen in banking over the course of the crisis, EY advisors say this is just the beginning.

The next step could include recommending bank involvement with more profitable business.

“I think it’s not enough for finance just to be the ‘scorekeeper’ anymore,” said Andrew Harmer, Partner, Financial Services Risk Management, EY Australia. “Banks need, for example, a more reliable forward-looking view on their performance — that’s clearly in much greater demand.”

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