2021-10-21-安永-How_regulatory_divergence_is_challenging_cross-border_financial_firms_24页_4mb

Summary of "Navigating Cross-Border Financial Services Strategies" (October 2021)

Introduction

The report examines the implications of global events like Brexit, COVID-19, and technological advances on cross-border financial services strategies. It highlights the need for boards to adapt to regulatory divergence and operational challenges in an uncertain environment, providing a foundation for strategic planning.

Regulatory and Political Backdrop

• Brexit has driven significant cross-border shifts, with firms relocating operations and staff to Europe, increasing regulatory fragmentation.
• The EU focuses on enhancing financial autonomy, including digital currency and sustainable finance, while the UK seeks independence through policy divergence and maintaining hubs for technology and innovation.
• Global trends toward sustainability, digitalization, and climate policy influence regulatory changes that may vary regionally.

Impact of Strategic, Legal, and Regulatory Divergence

• Boards must address challenges from differing legal, supervisory, and tax requirements, potentially requiring re-examination of legal entities and business strategies.
• Key considerations include optimizing operations, managing costs, adapting to client movements, and ensuring alignment with evolving regulatory expectations.

Legal Entity, Strategy, and Operating Model Considerations

• Legal structures need refinement due to new EU and UK requirements, including capitalized entities and reporting obligations, alongside potential for consolidation or expansion.
• People-related challenges involve navigating border restrictions, data privacy risks, and enabling flexible working while complying with regulations like GDPR.
• Data privacy and AML: Regulations enforce stricter data handling and increased cooperation between jurisdictions, with ongoing updates such as the EU's new AML package and UK reviews.
• Tax: International tax reforms like the OECD's BEPS project and EU minimum tax rules require firms to manage transparency and alignment with economic activity, including ESG impacts.

Sustainable Finance

• Regulatory differences in ESG and taxonomy definitions create complexities for reporting and product development, with a need for granular data and harmonization efforts.
• Challenges include demonstrating sustainability credentials, managing stranded assets, and addressing wider environmental and social risks, such as biodiversity loss.

Technology in Financial Services

• AI, RegTech, Blockchain, cryptoassets, and Cloud are accelerating financial services transformation, but require transparent governance and adherence to regional standards.
• Cross-border issues include data integration, compliance with emerging technologies, and ensuring operational resilience through decentralized solutions.

Conclusion

Firms must prepare for ongoing regulatory divergence by strategically aligning operations, enhancing compliance, and leveraging technology to mitigate cross-border risks. Boards should focus on resilient strategies that adapt to evolving legal, political, and environmental factors.

Questions for the Board

• Evaluate legal entity structures, outsourcing, and group efficiencies.
• Address data transfer risks, AML compliance costs, and regional tax alignments.
• Assess technological investments, sustainable reporting, and AI transparency to support strategic optimization.