Regulatory compliance
Keeping in line with new regulations will be high on the list again in 2012. The US Dodd-Frank Act has been passed, but uncertainty still surrounds the details of how the Act’s requirements will be translated into regulation.
“So much of Dodd-Frank is still undefined,” comments James Gellert, chief executive of New York ratings agency Rapid Ratings. “That will be a big challenge for anyone in operations or compliance – 2012 could be a limbo year.”
Dodd-Frank isn’t the only challenge in this area: compliance with the UK Bribery Act will remain a concern into 2012, and other countries might well follow suit in tightening up their anti-corruption efforts, lawyers believe. Insurance companies will face new uncertainty around the Solvency II capital adequacy regulations since the announcement in late October that full implementation would be delayed until 2014, leaving them unsure about what regulations will apply during 2013.
The US Foreign Account Tax Compliance Act (Fatca) is also set to come into force at the end of 2012, but the cost and difficulty of implementing the Act’s requirements on reporting US citizens’ foreign bank accounts – and its sanctions on non-compliant foreign banks – mean the final shape and schedule of the rules are unclear. In any case, banks are preparing for massive compliance costs, and might also face problems with local data protection and privacy laws.
At the same time, governments will start to phase in the first parts of the Basel III capital adequacy rules for banks – another compliance challenge, with uncertainty over how different countries will implement the rules into national law raising the possibility of regulatory arbitrage.
“New regulations represent a big change-management requirement,” says Brett Aubin, co-head of risk assurance at Sapient in London. “That itself will place institutions in a state of operational risk, from five or six directions at once. Budgets are tight, and the question is whether it is possible to sustain this while carrying out these changes. There will have to be a lot of negotiation with regulators on the details of these rules.”
“We’re still only at the beginning of the direct impact these changes are having,” comments Rohan Douglas, chief executive of New Jersey-based financial technology specialist Quantifi. “Also, the technological and infrastructure changes resulting from them will be significant.”
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