Research & Thoughts

Regulatory Reform: 7 Critical Questions for Financial Services Firms

The full impact of the 2010 legislative overhaul of U.S. financial services regulation will emerge through extensive rulemaking in the year ahead. Eleven government agencies will together promulgate some 250 rules that will implement the Dodd-Frank Wall Street Reform and Consumer Protection Act, at least doubling the number of requirements banks must meet.

Despite uncertainty over the ultimate form and scope of the rules, smart financial services companies are moving ahead to prepare. Dodd-Frank is law, and many key provisions will be implemented regardless of how the next months’ proceedings play out and political winds blow. The Volcker Rule will alter how banks trade and invest. The Collins Amendment will intensify capital requirements. The Lincoln Amendment will require some banks to spin off their swap desks.

A bias for action is understandable given the substantial new requirements and potential opportunities associated with reform. But companies could be making decisions and taking actions that prove to be ill advised once rules are issued.

Capco has identified seven critical questions related to strategy, customer and counterparty disruptions, structure, and technology that board members and senior executives of financial services firms should consider as they measure the effectiveness of their regulatory reform programs. The questions relate to:

• setting firm strategy
• anticipating potential customer and counterparty disruptions
• structuring the firm for a new regulatory environment
• assessing the opportunities and threats brought by the newly mandated global standard for legal entity and product identification.

While many requirements of the new regulatory environment are still to be determined, sweeping changes are inevitable and already happening. Leading firms are addressing this major shift by taking a comprehensive, strategic view. They are establishing global program management offices to guide activities across securities operations, investment banking, corporate finance, and operations and technology.

By doing so, they are strategically positioning themselves to gain market share worldwide by taking advantage of their strengths in jurisdictions where they’re permitted to operate. They are gaining transparency into the lowest level of their organization to understand where risk is concentrated internally, within counterparties and in the financial system overall. By addressing the seven questions presented here, your firm can begin to follow suit.