Regulatory Reform: Don’t Hedge Your Bets Yet

With the recent installation of a new President in the United States, there is an enormous amount of uncertainty as to what shape regulatory reform will take within our financial markets structure. Will there be massive changes, full gutting of certain laws, or will many regulatory requirements simply be done away with entirely? We have all seen many news stories with similar headlines that hint at "The end of Dodd-Frank" or "A massive undoing of regulatory reform" as examples. However, Financial Institutions need to be careful before hedging against any anticipated pullback in regulatory requirements before those changes actually transpire. Just don't count on a certain direction before it becomes reality. There are some good reasons for gauging one's response here carefully.

If the incoming Trump administration were to make major changes to the regulatory requirements of financial institutions, I believe some of the initial changes would come in the form of a reduction of capital requirements, thus making firms require less in reserve. This could lead to those firms potentially increasing or expanding their businesses. If they do grow their businesses, this would also increase the amount of transactions, messages and communications that need to be captured, retained, and surveilled. Increasing revenue will be a warmly welcomed by most, but compliance departments, who are already overburdened, might not be as happy.

Reducing Monitoring and Supervision will open firms up for risks that they do not want to have to expose themselves to again

If this scenario does occur, there will certainly be a need to increase Surveillance, and that's where the "old" approaches and solutions just won't do. Due to the nature of regulations around surveillance and monitoring, and working groups and associations building codes of conduct on a global level, no one country can start to reduce the amount of supervision on regulation if it wants to be able to conduct business with the rest of the world. Reducing monitoring and supervision will certainly open firms up for risks that they do not want, potentially leading to all sorts of additional costs in the form of fines, legal fees, and re-building a reputation.

With the aid of ever-developing technology, compliance departments need to stay the course and continue to develop and invest in processes that are effective and efficient in detecting potential fraudulent behavior no matter how regulations are modified Particularly those of us here in the United States, who may need to grapple with many changes in the regulatory climate in the coming year, should always focus on the global nature of our businesses and develop strategic planning and compliance with that in mind.


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