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Banking chiefs say regulation of the industry needs to strike right balance

As banks come under increasing regulatory scrutiny, some are already grappling with implementation issues. 

SINGAPORE: Banks have come under increasing regulatory scrutiny in recent years following the 2008 financial crisis. While it may take years before some of the new measures like the Dood Frank Act take effect, banks are already grappling with implementation issues.

In the last six years, following the Lehman Crisis, the banking industry has been grappling with increasing regulation. Speaking at the 6th Wee Cho Yaw Singapore-China Finance and Banking Forum organised by the National University of Singapore Business School on Friday (July 25) local banking chiefs said a balance needs to be struck.

"The fact is, money laundering, terrorist financing, drug financing is a real problem and because it goes through the banking channel, a bank is a good agent to try and stop that,” said Piyush Gupta, CEO of DBS. “We have a reasonable role to play as members of society, but the requirements on the banking system today are onerous - we're becoming an extension of every regulatory agency."

Citigroup’s Michael Zink said that it will take another decade before all the implementing regulations are written and put into place. “This is an evolving change, it's going to take a long time,” he said. “But (it) has very serious implications on our business model and profitability."

Regulators say that rules are necessary as banks may be driven by short-term profit gains and may not always act in the best interests of customers. "From a regulator's point of view, I think that we'd be very, very happy to not have to come out with a lot of prescriptive regulations, if (the) industry could self-regulate,” said Teo Swee Lian of Monetary Authority of Singapore. “That means that they have to make sure that there is the DNA within their institution to be able to do that self-regulation, from top-down, bottom-up, inside-out."

Amid rising regulatory and competitive pressures, some industry players say the key lies in cultivating an "authentic culture of service".

"An authentic culture of service helps to keep an institution focused on doing what is right for the customer,” said UOB chairman Hsieh Fu Hua. “Not just at that moment in time, but for the long term. If the culture of service is not authentic, then new regulations become a burden. Banks that can manage new regulatory requirements without compromising service standards or the robustness of their processes will in turn win more customers."

Hsieh added that banks like HSBC in the UK have moved away from giving bonuses to staff based on sales volume. Instead, they are rewarding employees based on measures like service satisfaction and sales quality. He said it will be "interesting" to see which banks follow HSBC's approach in the future, as most banks continue to use sales-driven compensation.

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