Head of Global Regulatory Polic
Wolters Kluwer Financial Services
Financial organizations across the globe encountered increased regulatory pressure in 2012 as more visibility and scrutiny were placed on the areas of compliance, risk, finance and audit. That pressure is only likely to build in 2013.
How do we meet these obligations and regulators’ heightened expectations?
Following U.S. President Barack Obama’s re-election in November, it’s clear the Dodd-Frank Act will remain in place and the Consumer Financial Protection Bureau (CFPB) will intensify its rulemaking and oversight efforts. And Basel III, Solvency II and global International Financial Reporting Standards (IFRS) continue to be in the spotlight for financial organizations operating in the U.K., Europe and the Asia-Pacific region.
But now, the question for many companies is, “How do we meet these obligations and regulators’ heightened expectations?” The answer according to regulators worldwide often lies within the quality and availability of an organization’s data.
Regulators in nearly every country are taking a data-driven approach to supervision, demanding organizations provide more information than ever before to help ensure they are meeting compliance requirements, protecting consumers and effectively managing risk.
Basel III has been the source of much transformation over 2012 as the industry has been preparing for the changes in capital requirements that are due to start from January 2013. Rules related to liquidity ratios, leverage ratios and capital buffers have also been finalized. In addition other initiatives have emerged, including guidance on systemically important firms (SIFIs), the establishment of central counterparties and trade repositories for OTC derivative trades, a new focus on resolution plans, and the demand for more extensive stress testing.
To top all these changes the sector also has to face increasingly more intrusive and better resourced regulators. These changes have put firms under pressure to improve their infrastructure and organization to cope with these changes. More nimble firms are also using these developments to create competitive advantage. Overall the changes are making firms even more risk aware, but change is demanding. Over the next few years things may not get any easier.
Many of the Basel III measures are in various stages of development in terms of the legislative process. It is clear that some will be postponed as the delays in the final rules will result in less implementation time for firms. As a consequence, one of the biggest impacts on firms next year will be the pressure on their internal resources. Financial firms will find once again that when the resources to make changes are most needed they will be least available. For many firms the impact of regulators on their business and operating models may also impact the pace of Basel III compliance. It is imperative that firms need to have a clear strategy for dealing with these changes.