Regulatory Reform in the Financial Services Industry

The global financial crisis and crippling credit crunch that began in 2008 served as a wake-up call to the industry as well as to governments and regulators.


Watch Protiviti Executive Vice President Carol Beaumier discuss key changes in regulatory requirements that are impacting financial services organizations.

Blame for the financial crisis is shared among many parties. The reasons why the regulatory infrastructure failed are many and varied, including:

  1. Segments of the industry and certain financial products were unregulated or under-regulated.
  2. Regulatory schemes designed in much different (and simpler) times did not allow for effective oversight of large, complex financial services organizations.
  3. Regulators failed to see and react quickly enough to signs that many financial institutions were aggressively growing risky businesses without proper risk management.
  4. Regulators focused too much on individual institution risk and not enough on systemic risk.
  5. Existing regulatory requirements for capital, loan loss reserve provisioning and valuation practices amplified rather than buffered the impact of financial shocks.

In July 2010, the U.S. Congress enacted a law expanding the federal government's role in the markets. The Dodd-Frank Wall Street Reform and Consumer Protection Act is widely considered to be one of the most comprehensive reforms of the U.S. financial industry in decades. Signifcant regulatory reforms have also been adopted globally, notably, but not exclusively, in the European Union and the United Kingdom.

As a result of these various initiatives, financial regulations have been evolving at an unprecedented pace across all segments of the industry. For example:

  1. Regulatory regimes have undergone significant change in both the United States and the United Kingdom.
  2. The new international capital standards, Basel III, were released in late 2010 in response to the financial crisis. In November 2011, G20 leaders in Cannes called on jurisdictions to meet their commitment to implement fully and consistently Basel II and Basel 2.5 by end 2011, and Basel III, starting in 2013 and completing by 1 January 2019. These changes create more opportunities to help clients respond to new requirements, including such areas as capital calculation, credit and operational risk models and methodologies, and risk reporting.
  3. Large and systematically important financial institutions in the United States and Europe are being required to develop and maintain resolution plans, or “living wills.”
  4. In the United States, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System issued supervisory guidance describing how financial institutions should manage the risks associated with model use. These agencies along with the Federal Deposit Insurance Corporation also issued guidance addressing the use of stress testing as a mitigation tool.

While regulatory change is still ongoing and uncertainty exists in the United States and other jurisdictions over how some reforms will ultimately be implemented, the landscape for financial services companies has already changed dramatically. Over the coming years, financial institutions will continue to struggle with massive regulatory change and to adapt to the realities of doing business in the post financial crisis environment.

How Protiviti Is Partnering With Companies to Meet This Challenge

Since the early stages of regulatory reform, we have been encouraging companies to consider how regulatory changes are likely to affect their business and to respond proactively to changes that seem inevitable. In these uncertain times, organizations with strong risk management and an enterprisewide view of compliance will have an advantage because they will be better able to adapt to and manage changing regulations, causing less disruption to their business operations.
We can assist companies in analyzing the impact of new rules; determine needed changes and redesign existing processes and practices; assist in implementation efforts; help clients through remediation and enforcement actions; and capitalize on internal audit opportunities to test for compliance. Additionally, given the high rate of change and the need for additional investment in compliance and enterprise risk management functions, we can assist organizations in reviewing and reengineering compliance functions, enabling them to derive more value from compliance activities.

We offer resources for organizations struggling to understand and respond to the law’s still-evolving requirements, such as:

  1. Our regulatory intelligence software – The Governance Portal for Regulatory Reform  – helps organizations determine the status of regulatory developments and changes; assess regulatory risk; assign accountability and track status of implementation efforts; monitor and evidence compliance; and demonstrate risk management practices to regulators, customers and other stakeholders.

Our risk and compliance professionals have worked with financial services clients around the world. We create regulatory compliance solutions that align with your business strategy and risk profile. Our multidisciplinary team can ensure your technology infrastructure is supporting your objectives. We also can implement software and controls to improve performance and efficiency. In addition, we have communications professionals who can help you make the cultural changes necessary for effective risk management and compliance.


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Carol Beaumier
Andrew Clinton
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