Delaying regulations

Is delaying regulations always a blessing?

Regulations and deadlines, a tale as old as time, and one you know all too well. They start fairly vague, with many elements still up for consultation and refinement. Except for the deadline, that one is usually fixed rather quickly. Almost always quite some time in the future, but by the time everything is clear, it is usually very tight, and it requires every financial institution to rush things to meet it.

So, whenever a regulator decides to show some leniency and extend the deadline, surely that must be a great thing, right?

But is that always the case?

One year

A one-year delay, just like we had with SFDR RTS. This is where you are likely to say: “Thank you very much!”. Changes in the surrounding environment will be limited and manageable, so you can keep going at the same pace with the same workload and you are able to produce a better result with the extra year of work. Great! Of course, one could argue that this also costs another year of work, but assuming that you would not or barely have made the original deadline, this argument is usually void.

Two years

The first thought may be; two years is even better than one year! But is it really? Let’s take a look at CSRD sector-specific standards, how does that work out?

In general, you probably do not need these 2 years to finish up your deliverables, so how to best handle it? Should you go ahead and finish early? But what if the regulation still changes after you are done and you have already dismantled the project?

Or should you pause the project, because you have so many other challenges where these resources can be put to good use and then restart in time to meet the deadline? Will you still have all the resources and expertise? Because this project was already competing with other must-win-battles, who will certainly make good use of the available resources.

What about consultants? They will move on to other clients, how can you ensure the same level of knowledge in the project?

The processes and solutions which are interfacing with your scope, are not standing still either. Meaning that you will need to redesign parts of your target solution due to the delay. Suppose an interfacing solution is due to migrate to a new setup. Your original plan worked with the assumption that your project would be delivering first and would then undergo the migration in BaU. But now, you may have to take into account the migration during your own implementation. Complicated, to say the least.

Already you can see that the delay has its disadvantages, with no choice being only positive for your organization.

Three+ years

From here on, it starts to become impossible to manage. As is the case now with Basel IV, which was first delayed by a year and then by another two. Here you clearly run into a series of practical and strategical issues.

Forget continuing the project or retaining the resources, no one is going to wait around for 1-2 years to restart a project. This means everything comes to a grinding halt, plans are put in the drawer and there will be no or little attention to the subject, except for maybe a short quarterly non-update in a QBR or other meeting.

But, even after 2 years you should still be able (with a new team) to take the original plans and execute them, right…? No. In three years’ time, your solution landscape will have undergone significant changes. Solutions which were earmarked for replacement in your initial plan, have now definitely been decommissioned. New solutions have been implemented, with new processes, new data structures, new interfaces etc. New challenges arose, shifting focus of the change agenda to these areas, which you could not account for in your initial plan.

All in all, you will need to practically redo your entire target architecture and roadmap to incorporate all these changes. So whatever time you spent designing and maybe even partially implementing the solutions to become compliant, has become obsolete. There is but one way to approach this: start again. Maybe you can pick up some pieces from your old designs, but you are probably better off ignoring those and designing a new target architecture and implementation plan.

Conclusion

Now we know what you are thinking: not many regulations face a 3+ year delay! And the Basel IV delay was exceptional due to COVID! You are right! But we already established that even a 2-year delay is not so much a gift as a curse, so one can conclude that any delay beyond 1 year should be treated with consideration by the regulators and it should certainly not be assumed that this delay will be welcomed by everyone.

If regulators really want to help financial institutions in achieving their deadlines and the imposed goals, there is a much more straightforward way to do so: provide clarity.

Rather than delaying regulatory deadlines for one or more years, consider providing clarity on what the regulation entails from day one. It is impossible to come up with a conclusive plan when half of the regulation is still in a design or consultation phase. Knowing the implications at the time of the publication of the regulation, would be more beneficial than any delay could ever be. So don’t delay the implementation, delay the publication of the regulation until full insight can be derived from it.