Both academics and practitioners have largely focused on two aspects regarding regulation: a) the direct costs (e.g., the costs associated with capital requirements associated with bank regulation) and b) the overall economic impact. Indirect costs that arise from complex regulations such as e.g., the cost of modifying IT-systems and processes have received significantly less attention.
However, these indirect costs can be quite substantial. Overly complex regulations can overburden financial institutions and impair their ability to provide financial services efficiently. The problem has become worse in recent years because more and more regulation as become applicable also for smaller companies. For them the indirect costs can be even higher because they often lack the expert knowledge and project management experience to comply with the requirements of the new regulations.
As a result, there has been a lot of pushbacks from the financial industry against more and complex regulations. However, the attempts of the financial industry to prevent increasing regulatory pressure has not always been successful and financial institutions need to adjust to a setting with changing and not always robust regulation.
What can companies do to become more efficient again? They need to develop tools and processes to adapt to changing and complex regulatory requirements. Good requirements management can be a first step.
