Evolution Of The Financial Sector

Evolution of the financial sector

Introduction.

The regulation of the financial sector has grown extraordinarily in order to improve the safety levels of the financial industry, this indicates that regulatory compliance is very important for its success in the future. All this leads to the fact that banks must be stricter in terms of the training of their professionals and much more transparent with their customers so that they understand the functioning of new services and products together with their risks, therefore it is importantModify every so often so that the profile of each client is joined.

This regulation requires processing an increasing volume of information, this is done through important technological advances such as the cloud that is an artificial intelligence wave since huge amounts of information can be organized and supervised, which contributes to the effectiveness of the sector to the sector to therelease resources that can be used in more productive uses. It also favors the quality level of supervision practices, which benefits from more homogeneous, detailed and faithful information that also gain operational efficiency.

Developing.

With the abundant regulatory changes worldwide as a backdrop, the EU has adopted positions such as the Single Supervision Mechanism (MUS), the Single Resolution (MUR) mechanism and the European Banking Authority (EBA) which establish supervision parametersas well as its interrelations with technological transformation.

After the last financial crisis, recovery measures have been implemented, in order to avoid or lessen the future crises, which have been better at solvency and liquidity levels since it is a supervisory review and evaluation process (PRES). 

The business model has allowed to examine financial institutions, in aspects such as measuring and classifying according to capital and liquidity requirements. For this to work, banks must resort to technology in order to provide annually to the organisms that supervise, the complete and correct data indicating what are the expectations of the entities for the future. It is risk management since after the crisis, it increased the credit risk since many of the loans were unpaid and this resulted in banks to dedicate more efforts to lower their figures.

Along with this, another problem that arises is that the system not only has to correctly classify the NPL (doubtful loans), but also to respond to new obligations on preparing reports. All this disadvantages those entities that until now had in order and with a correct classification of doubtful loans, to solve it it is recommended to store additional data.

Another risk that arose is the defaults since there is no specific regulation for this matter, so the EBA (European Banking Authority) has prepared standards that require that operating systems contain more detailed information. Therefore, instead of calculating delinquency taking into account the period of pending payments, in 2020 the credit obligations will have to be evaluated daily for their greater management. In order to face risk management, it is important to eliminate the possibility of false data, so it is important that the information is detailed.

This solution came in December 2017, when the Basel Banking Supervision Committee introduced changes in Basel III agreement to limit the use of internal grades methods (IRB). At that time, the European Central Bank (ECB) launched the specific review of the internal models (Trim), the review required that financial entities will have the necessary tools to guarantee the quality of the data and the maps of the maps of theSystems in order to carry out detailed information on information.

European banking authority in 2018 carried out resistance tests, that is, a test in order to determine the stability capacity, in 48 EU banks to provide supervisory organisms and the market in general a common analytical framework in order to assess and valueCompare the resistance capacity of entities regarding potential economic impacts.

The qualifications obtained have been applied to the supervisory review and evaluation process (Press) carried out annually by the Single Supervision Mechanism (MUS). Currently, the test requires more data, so it is necessary that financial institutions invest great efforts and capital in human resources in order to organize their information, that is, to manage the quantity and quality of their data. All this creates the need to have advanced control tools and procedures. These tools benefit not only supervisory agencies, but also to the entity itself, since those responsible for financial institutions will have the capacity to access the information that will help them properly plan to make decisions with knowledge of the future in the future.

The preparing for reports is arduous;largely due to the high volume of information that requires, but there have been advances to simplify and normalize the process. An example is that in 2018 the system called Anacredit was created to bring records of bank loans, and the Integrated Reporting Dictionary of the Banks (Bird) that creates a common model to organize the data deposits of the banks and constitutes aCommon language in the transfer of information from financial entities to supervisory agencies.

The objective of these measures is to improve the effectiveness of the European Reporting framework (ERF) by minimizing the duplicity of information through coordination in the collection of data requested by the ECB (European Central Bank) and the EBA (European Banking Authority) . This entails a standardized and consolidated regulation that takes advantage of new technologies to give rise to effective, optimized and responsible financial entities. Although it is complicated since there is a lot.

In 2018, this financial regulatory reform approved after the crisis by the G20 (industrialized and emerging countries) and the Financial Stability Board (FSB) was practically completed. But, throughout the year different initiatives have emerged that give rise to new legislative developments. In addition, lines of work in other fields have emerged, such as the reform of the EURIBOR and EONIA reference indices, the use of new technologies and the departure of the United Kingdom of the European Union that are at the agenda.

Although the previously described regulatory measures were intendedRegulation (USA.UU.) or stricter (such as those applied to foreign banks in some countries). These differences are worrying for the parties involved: regulators, supervisors, the financial services industry or end users.

On the one hand, Europe has tried to move towards a more unified financial market with legislative initiatives to complete the Banking Union, the Capital Market Union and the Single Digital Market. So the efforts focused on finishing the negotiation of the bank package, thanks to this, progress has been made in the debate of the measurement package for the adequate recognition and assessment of the doubtful loans but the progress in the scope of theBanking Union.

With regard to completing the capital market union, the Commission has advanced in some action plans, but there are still many others that are stagnated in the long and arduous European negotiation process. As for the Spanish financial sector, in recent times, in a difficult situation due to the concurrence of several exceptional circumstances such as the need to undertake large investments to face the challenge of digital transformation.

And all this in a context of low interest rates which presses the financial margin and limits its profitability. So banks must compete, in that complex environment and also with new competitors to which the regulatory demands affect them to much lesser extent, which makes it even more difficult to recover a level of profitability sufficient to compensate for the cost of capital.

It is true that all these factors are not very different from those facing other European banks, this explains that together the European banks are quoted in the markets to significantly lower levels than their American fellow men since in the US.UU. The banks are more advanced, so much so that the normalization of monetary policy has occurred, that is, a tax reform, which has had a positive effect for them and also a change in tone in financial regulation that is very different from that ofEuropean. Therefore it is important that the tasks that are pending are carried out properly.

On the one hand, the Spanish financial sector is a key factor for the development of the Spanish economy along with its modernization and internationalization since it is a high quality employment creative sector, with the ability to cooperate a faster development of digital transformationin the business fabric and thus be able to collaborate in strengthening the new productive model of the Spanish economy.

In this complex context they do not seem particularly appropriate or the recently adopted fiscal measures that affect the financial entities or, above all, the tension derived from the recent judicial pronouncements on the tax of documented legal acts in relation to loan contracts in relation to loan contractsWith mortgage guarantee, a fiscal issue that aims to become a general cause against banks.

Conclusions.

Finally, all these new previously mentioned ways that have arisen in order to provide financial services, create new products in union with the errors that have previously been made have forced international and local regulatory entities to create a new framework. So the frame is stricter and more complex than the previous one that was in force.

On the other hand, legal systems compete when attracting industries and investors, and this is particularly true for the financial sector because of Brexit. The lack of predictability on the criteria of interpretation of the legislation that affects the banking business, the fiscal framework or current labor legislation are all very relevant factors when an entity determines whether to settle in our country or make an important investment. Therefore, all changes must be prudently weighted. In short, Spanish banks are now in a much better position than that of a few years ago but it would be convenient for their pending tasks to end without interruptions.