Banks are swamped by regulation and drowning in data

European banking is wrestling with many challenges as part of a multi-year transition, says KPMG

European banks are swamped by regulation and are drowning in data that they don’t know how to use, a new report by KPMG suggests.

According to the Big Four firm, banks are in the middle of a ‘multi-year transition’ as they wrestle with strategic, operational and change challenges.

KPMG identified four key problems facing banks. These are:

• Regulatory complexity and uncertainty. Banks have to meet multiple new regulations and reporting requirements and comply with many different regulators.
• Diminished returns. Revenues are under severe pressure, while bank costs are rising as a result of regulatory implementation.
• Data overload. As banks have more reporting requirements to comply with, many are drowning in data and not necessarily using it effectively.
• Culture. Banks recognise that culture and behaviours need to change, but that requires significant re-plumbing of their organisations.

The report also highlights figures from Bloomberg that show the return on equity among European global systemically important financial institutions has fallen from a peak of 16% in pre-crisis 2006 to less than 6% in 2011, though there was upward movement in 2012.

Commenting on the research, Jeremy Anderson, global chairman of KPMG’s financial services practice, said: “Banks are redesigning themselves for the new world – although expecting a lower return on equity than in the boom years.

“Europe’s banking industry is likely to see significant consolidation, with the second tier likely to shrink in both breadth and number, as complexity, higher capital and optimal threshold bite.”

He added: “We believe the main brand names will continue in the market, but with fewer challenger banks emerging than might have been expected.”

About the author

Sally Percy is editor of The Treasurer