What Are the Greatest Regulatory Challenges for Financial Services Firms in 2022?

As perimeters continue to expand and expectations rapidly increase, the new year 2022 is expected to bring high levels of risk and regulatory supervision and enforcement in the financial services industry. In this year’s Ten Key Regulatory Challenges of 2022, Amy Matsuo, KPMG ESG and Regulatory Insights Principal and Leader, outlines key insights and actions for financial services companies to take to prepare for the obstacles that lie ahead.

The “Key Ten” challenge areas include:

Rapid Change:

Fairness and inclusion
Climate and sustainability
Crypto and digital assets

Maintain Focus:

Platforms and conduct
Cyber and data
Fraud and financial crimes
Valuation vulnerabilities

Mitigate risk:

Third party and cloud
Tech and resiliency
Risk complacency

On fairness and inclusion, the report looks at how investor demand, public awareness, social unrest and the priorities of the Administration have focused regulatory attention on supervision and enforcement of consumer and investor protection on a broad scale and expanded the parameters of “fairness” to include all consumer touchpoints. Moving forward, companies must prioritize and embed fairness across the customer journey, execute centralized processes, enhance complaint management processes, technology, and data analytics, and set clear and measurable DEI goals.

On climate and sustainability, the report suggests regulatory expectations, which have experienced sweeping changes in 2021, will continue with rigor into 2022. Federal financial agencies must develop, and execute on, a strategy to quantify, disclose, and mitigate the financial risk of climate change on both public and private assets.

According to KPMG’s 2021 U.S. CEO Outlook survey, 52% of the U.S. CEOs said they are seeing significant demand for increase reporting and transparency on ESG issues today from stakeholders

On cyber and data, the report states financial services regulators have called cyber risk the foremost risk to financial stability – and the Administration has called it a persistent and increasingly sophisticated threat that weighs heavily on government and financial services companies alike. Given the highly interconnected nature of the sector and its dependencies on critical third-party service providers, all participants in the financial system must implement risk mitigation and resilience initiatives relative to both frequency and impact of cyber threats.

On tech and resiliency, the report indicates that although advances in technology have improved firms’ ability to identify and recover from disruptions such as technology-based failures, the frequency of events and potential for interconnectedness and/or interdependencies to amplify risks, are prompting leading companies to adopt a more holistic, multi-function approach. Going forward, companies need to set resilience standards and methodology for resilience criticality for services, measure asset financial and non-financial risk exposure, and provide transparency to boards and senior management with regular insights that clearly articulate minimum service levels, and degrees of resilience.

On Risk complacency, the report indicates that regulator’s view “risk complacency by financial service companies as a potential threat to both stakeholder trust and safety and soundness. Companies must deliberately ensure that they are guarding against overconfidence – particularly during times of business, M&A, and innovative growth – by raising risk and compliance investment and voice.

To learn more about the Ten Key Regulatory Challenges of 2022 or to arrange an interview with ESG and Regulatory Insights Principal and Leader, Amy Matsuo, please contact Allison Rivellini.