The Winds of Regulatory Change

As a result of the severe financial crisis of recent times, financial regulators globally are increasingly focussed on attempting to ensure the stability of financial systems. Regulation has proliferated, and we have seen the introduction of the:

• Sarbanes-Oxley Act in the USA focusing on corporate governance
• Basel II focusing on risk and capital adequacy
• Anti-Money Laundering regulation
• Harmonisation of international accounting standards by the IASB.
• MiFID (Market in Financial Instruments Directive) and MAD (Market Abuse Directives)

And in the pipeline:

• Changes to Basel II as a result of the traumas in the financial markets
• Tighter liquidity risk management regimes
• The EU is planning to introduce Solvency II, a new solvency and regulatory capital regime for insurance companies within the EU, planned for 2012 and expected to be adopted in a similar, if not identical, form across many other jurisdictions.

While there are common threads throughout, there are also significant differences between the overlapping regulatory frameworks that a Financial Services Institution may be subject to. Much of the regulation is new and in the process of being defined and the devil is usually in the detail.

Quadrant helps Financial Services Institutions confront the challenges posed by Basel II, Anti-Money Laundering, Solvency II and others. Many of the risk management concepts and techniques proposed will represent a step change in:

• The way financial institutions identify, measure, price and control risk,
• The rigour of the supervisory regime applied to them and the effect that the compliance burden may have on business decisions,
• The ability of financial institutions' investors and stakeholders to discriminate between institutions on the basis of their risk management and compliance cultures.

All Financial Services Institutions in the current climate will have to demonstrably achieve increasingly effective standards of risk management and compliance. Those institutions which stand still will come under increasing supervisory and stakeholder scrutiny.