Japan – GMAC’s International Banking Securities System Forum 2016~
Arnaud Picut, Global Head of Risk Practice, Misys shares his impressions and key learnings

As predicted, the GMAC event was very rich in exchanges and dialogues with representatives from various institutions including large international banks, securities firms, asset managers and local regional banks. I had the opportunity to discuss the latest market trends with many attendees which touched upon several topics that seem to take the full attention of our Nippon colleagues:

1.  Regulation and innovation. It started by a dilemma between innovation and regulation – which are seemingly at opposite ends. When I asked a question about innovation, simplification, streamlining of processes in order to grow again, the discussions always bumped into the same road block: regulation.

Regulation and security are taking full attention, energy and budget, preventing institutions to transforming their business model and investing into new technology to capture new business in more profitable ways. I think it deserves a broader discussion which should start by creating a map between countries that put regulation in the center of their business model transformation vs. countries that treat regulation from a defensive mode and see it as pure cost that is blocking any progress. This is where a peer to peer forum brings real value in order to compare practices around the world.

2.  Stress testing. Most consulting firms are busy supporting banks to put a stress-testing strategy in place as the FSA will not impose its own testing plan on the countries lenders. The comparison with EU / US falls short as first of all, Japanese banks did not really face the same level of losses and crashes and secondly, the deflation scenario which is in the center of the Nippon testing plan is either totally or almost ignored by most EU lenders. Therefore, paste and copy approach is just not an option.

3.  Low interest rates. The deflation discussion moved quickly to a debate around very low interest rates and the subsequent constant deterioration of loan demand. It clearly commends mid-sized banks or smaller regional banks to consider merging and consolidation or overseas expansion. One of regional bank risk managers is currently analyzing and investigating regulatory impacts for moving abroad.

4.  Unprecedented market movements. Inevitably the discussion moved to the extraordinary four years agreement between Rakuten and FCB (Football Club Barcelona) worth EUR 244 million. Like the CEO of this giant online shopping website in Japan said, “the time has come to go abroad by leveraging the FCB sponsorship.” So I instead of this unaffordable sponsorship, I offered this risk manager to sponsor my next Ironman in Lake Placid!!! Clearly cheaper but I am not so sure about the return!

5.  IFRS 9 triggered IRB adoption. Following a similar trend with regional banks in central Europe, IFRS9 has triggered a wave of IRB adoption. The main objective which is driving this trend is to revisit the credit risk strategy by aligning the credit decision process with the level of capital and amount of provision. Consulting firms are deeply engaged to help and advised local banks hoping for capital relief and provision mitigation.

6.  Surprising statistics. We also ran our market trends survey among the attendees in order to establish a worldwide behavioral map around risk and regulation. The main key takeaways from this event are the following ones:

- Which topics around risk and regulation would you consider as hottest and most challenging one for your organisation?

o 56% IFRS9

o 19% FRTB

o 13% IRRBB

o 6% ERM (building 2nd line of defense)

o 6% not regulated

- Next question was related to the strategy on how financial institutions treat the four main regulations (IFRS9, IRRBB, SA-CCR and FRTB): “Is your organisation having a plan to cover them in isolated way or rather having a more strategic approach by combing them in a single transformation project?

o 44% Individual treatment

o 25% Not defined yet

o 19% Transformation

o 13% Plan to first move tactical before transformation

- Do you think that these new regulations will impact your institutions business model and behavior in the near future?

o 81% Yes

o 19% Not clear yet (still under analysis)

-Finally would you consider the risk department of your organisation closer to “Generation 1.0, 2.0 or 3.0?

o 6% Generation 1.0

o 40% Generation 2.0

o 6% Generation 3.0

o 48% Don’t know

Definitively an event worth participating in with open and straightforward dialogues with one constant ask about the benchmark from peers, feedback from other countries, and interest to share strategy and practices.