Banks turn to tech to cut cost of new regulation
GENEVA (Reuters) - Swiss private banks are hoping to gain a competitive edge by investing in the latest technology for risk management and compliance to keep down the cost of new regulations brought in since the financial crisis.
Among the myriad of new international rules, the United States, for example, has brought in the Foreign Account Tax Compliance Act to raise tax revenues from secret accounts held by their citizens.
"The cost of risk and compliance has risen a good 30 percent in the last two to three years," Alexander Classen, CEO of the international business of private bank Coutts, told the Reuters Global Wealth Management Summit in Geneva.
"We feel the increased cost of regulations in cross border business," he said. "There is a bit of a race to scale," Classen said referring to the need to find economies of scale.
Since Classen joined Coutts in 2011, the bank has reduced the number of countries where it operates to 70 from 170, eliminating unprofitable offices and reducing cross-border compliance costs. It has also cut the number of information technology systems serving its IT platform from 35 to just one.
Coutts parent Royal Bank of Scotland is majority-owned by the British government since a bailout during the financial crisis.
UBS wealth management chief Juerg Zeltner said the Swiss bank's cost base was becoming more complicated and demanding. He said the cost of serving clients was increasing by the day.
The need to spend heavily on technology could make life difficult for Switzerland's dozens of smaller private banks which might find it tough to make money in this environment.
"Barriers to entry in our business are growing by the day," said Zeltner. "The operational risks and legal compliance burden has increased dramatically."
Bigger banks with deep pockets will have a competitive advantage if they get the technology right.
"Technology and automation are having as much if not more impact on the industry than the regulatory environment. Perhaps the one begets the other," said Catherine Weir, head of Citi's Global Family Office Group.
She said there would continue to be some margin pressure for banks, but effective cost control, including via use of technology, was going to be a competitive advantage, though achieving this would be time consuming and expensive.
She said new technology that allows banks to provide market updates or trading capabilities via the iPad - which is not yet available - would keep banks at the cutting edge in the race to meet client needs.
(Editing by Jane Merriman and David Goodman)
(This story was refiled to correct Classens' title in the third paragraph, to CEO of Coutts International, not of Coutts)