Banks and their stakeholders — both in Canada and worldwide – see regulation as the biggest risk to business, according to the 2014 Banking Banana Skins report by the Centre for the Study of Financial Innovation in association with PwC.
The biennial survey identifies the top concerns of 650 bankers, observers and risk managers in 59 countries. Canadian respondents rank technology as their second biggest concern, with risk being driven by the expansion of mobile banking, new payment technologies and the increased data requirements arising from the regulatory environment.
The number one issue in 2012 – the macro-economic environment—sits third and criminality fourth. The interest rate, which ranks only 12th globally, rounds out the top five.
“Regulation being the top risk comes as little surprise, especially given that regulatory requirements have increased exponentially since the economic crisis began,” says Diane Kazarian, National Financial Services leader at PwC Canada. “In particular, stakeholders are concerned about keeping up with new rules, as well as the time and cost implications of compliance.
However, the general consensus in Canada is that banks are able to deal with the risks they face. On a scale of one to five (five meaning most prepared), Canada’s average preparedness score of 3.52 from tops all countries surveyed, and is well above the global average of 3.04. In comparison, the U.K. and the U.S., both of which were hit much harder by the recent recession, sit at the bottom of the list at 2.70 and 2.48, respectively.
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Using the same scale when asked about anxiety surrounding the identified risks (one meaning low anxiety), Canada’s 3.08 score again sits below the global average of 3.12. Again, Canada also fares better than the U.S. (3.21) and the U.K. (3.20).
“Due to strong profitability, a conservative approach to banking and sound contingency planning, Canadian banks appear well prepared to manage the challenges and risks they face,” says Ryan Leopold, Financial Services partner at PwC Canada.
Other highlights:
- Political interference is cited as the number two concern worldwide, and is seen to add costs and constraints to the sector. In particular, concerns are particularly strong in Europe, where extensive measures have been proposed or adopted at both the EU and national levels to make banks safer.
- Anxiety about the outlook for banks has started to decline for the first time in seven years, suggesting that the operating climate for banks is finally turning.
- By region, the responses show concern about regulation and politics to be strongest in Europe and North America. The top concerns in the Asia Pacific region focus more on the macro-economy and the risk of sharp changes in interest rates.