A new age of financial regulatory reform dawns in 2017.
Donald Trump’s presidency in the United States and the UK’s planned divorce from the European Union are taking shape as the main drivers of an uncertain era of “dismantling,” even as the structure built since the financial crisis remains incomplete. This transformation of the government role is taking place, furthermore, as the financial industry races to develop and adopt new technological approaches to compliance.
Compliance officers face change, change and more change, overlaid with the challenge of an increasingly wide range of sanctions being used by regulators to drive home the need for visibly effective compliance and the resulting good customer outcomes.
Our 2017 State of Regulatory Reform Report shows this uncertainty presents opportunities. Firms can seek to influence their futures rather than simply watching as rulebooks change. UK-headquartered firms will be watching the Brexit negotiations with special interest, fearful of losing passporting rights and wondering what equivalence deal may emerge, if any, once UK Prime Minister Theresa May triggers Article 50 to leave the EU, something she has said she will do by the end of March.
The Trump revolution in the United States promises to be substantial, even if the details of his agenda remain vague and sometimes contradictory. Trump is assuming the presidency with his Republican Party in control of both houses of Congress, giving him a rare concentration of power. He has already vowed to “dismantle” the post-crisis Dodd-Frank regulatory overhaul and is stocking his Cabinet and financial posts with Wall Street veterans who have criticized or questioned Dodd-Frank’s regulatory restraints as excessive.
There are signs, however, that regulators will not be entirely defanged, and that any deregulatory wave will not be indiscriminate. Trump has kept one of Wall Street’s sheriffs – the top federal prosecutor in New York – on the job. Industry veterans see little letup on enforcement against money laundering and sanctions violations. Democrats retain some power in the Senate to block legislation, and would likely try to impede any push for a full repeal of Dodd-Frank.
The independent regulatory agencies will have Republican leadership, but they can set their own agendas a step removed from presidential pressure. Furthermore, any moves to pass new laws and rewrite the rulebooks will take time. The U.S. financial industry will remain accountable for complying with existing rules as long as they are in effect, and liability for violations will endure even if enforcement authorities relax their zeal to reflect a new political environment.
In Asia, those firms licensed by the Hong Kong Securities and Futures Commission (SFC) – more than 2,000 – will face a tough start to the new year, after the regulator unveiled its “manager-in-charge” regime in mid-December. It has a deadline for compliance in July and requires firms to designate certain members of senior management with responsibility for eight core functions, covering the front, middle and back office.
Risk and compliance professionals will face challenges outside the ebb and flow of government regulation. Cyber security threats have increased in frequency and complexity, demanding more vigilance, more sophisticated defenses and more accountability. The financial industry is also in the early stages of a “fintech” revolution that is disrupting business models and offering new strategies for managing compliance responsibilities.
The State of Regulatory Reform Report looks at each of the world’s financial regions in turn, summarizing the key regulatory reforms underway and offering predictions on the regulatory events that will shape the year.
Download the State of Regulatory Reform Report 2017.