Regulatory Reform

Regulation rules - OK?

Today’s multi-jurisdiction regulatory environment is driving profound change for tomorrow.

Evolving frameworks affect every stakeholder, from government to consumers to banks and even to players not involved before: brokers, dealers and hedge funds.

Is anything good about regulation?
Planning for the future impact of regulatory reform calls for deep understanding of the new complexities - strategic and operational. It also demands insight into the upsides of regulation - and they do exist.

Greater clarity - Greater opportunity
Although it may still lack global consistency, regulation is bringing new clarity to the strategic and operational practice of financial services providers. They have to think differently about a range of challenges, from data quality and availability to product design, trading platforms and transparency. Correctly interpreted, compliance is much more than a reporting issue. It highlights key relationships between Front and Back Office and between previously siloed job functions. Finance and Risk Management have to coordinate and cooperate. The objective must be a robust and “interwoven” approach to all the key and interrelated aspects of the business.

To understand the reforms, understand their drivers
For the reformers too, life is challenging, as they attempt to address underlying factors of market volatility:

  • Automated trading, multiple markets and increasingly sophisticated technology have driven unprecedented market velocity
  • Bundling and re-bundling have impaired transparency, obscuring the true nature of assets in some securitized products
  • Exotic instruments, higher-order derivatives and other amalgamated products have created complexity

We talk to Regulators and we understand complex multi-jurisdiction issues - as part of turning a “visionary” approach into actionable reality, we look to identify and

understand the compliance framework of tomorrow as it emerges, rather than reacting to it retrospectively . The resulting insights include the fact that likely regulatory actions will encompass expanded controls, new limits on leverage ratios, and comprehensive additional reporting. Capco has identified seven critical issues which forward-thinking institutions should address as they prepare for regulatory impact:
  • Expanded controls
  • Stress testing
  • Consumer visibility
  • Increased transparency
  • More efficient reporting, both structured and ad-hoc
  • Global consistency
  • More focus on managing capital impact

Given sweeping changes, just reciting the rules as they emerge is not enough. Success in a new world of regulation demands the insight and ability to develop and operationalize effective strategies.

Our practitioners help prepare regulation-specific compliance programs, including governance definition, resource identification, and assessment and implementation of process and technology requirements. We support improved collating, cleansing and mining of reporting data, and provide analytic support for modeling, validation and stress testing. We provide solutions that support accurate reporting and transparency. And we offer expert advice on evaluating, selecting and implementing integrated finance, risk and compliance package solutions.

The Capco insight
The Capco insight into Regulation is that it does not need to be an inevitable brake on revenue growth and profit. The often underplayed “silver lining” is that compliance, managed correctly together with finance and risk, and combined with understanding of the likely shape of the future, will bring sustained operational improvement and new opportunities.