Regulation stalemate: An opportunity to move forward?

Publication date: 4 July 2012
Author: Terry Gibson

Tagged with: Dodd-Frank Act, Fiserv, Terry Gibson, Volcker rule

Regulation is always front of mind in the industry, and never more so than when there is a high profile loss. Regulations and the speed at which they are pushed through are often a talking point, and whenever a large incident occurs, the conversation around deadline certainty and regulation clarity is reignited.

Terry Gibson, Global Business Head, Transaction Processing Solutions, Investment Services at Fiserv

The recently announced UK Banking Reform Bill was delayed until this month and exemplifies a trend for regulation announcements to be pushed back. The Volcker Rule in the U.S. and the EU’s Solvency II are just a few of the regulations that have also been delayed. When these regulations are put into action, they will require a huge amount of reorganisation and budget commitment.

The Volcker Rule is in the spotlight at the moment; adopted as part of the Dodd Frank Wall Street Reform Act, the Volcker Rule would restrict proprietary trading and investing in or sponsoring traditional securitisation vehicles by banks and bank related affiliates. The Rule is due to take effect on July the 21st, 2012. However, less than a month before the deadline for this Rule’s implementation, no definitive regulations have been issued.

Unease is growing that without finalised regulations to implement enforcement of the Volcker Rule, the securitisation markets could experience serious disruption, especially in such sectors as the asset-backed commercial paper markets. As of today, nobody knows if the deadline will be pushed back or suspended.

With no definitive guidance and a questionable date of implementation, how are banks supposed to prepare? The answer is, they can’t. Setting aside budget for something that may or may not happen and with no real idea of timeframe is not something banks can afford to do within their current organisational structures.

But regulatory changes and pressures are not going away, and there is no reason to believe that they will become any less fluid in the future.

The solution? Banks have to become more flexible since it is likely that compliance issues will continue to multiply. Large investment banks that we work with are asking us how they can become more flexible in order to move forward in this new environment.

It seems that financial institutions have an ongoing struggle between knowing whether to spend money on developing technologies to benefit the business, or keep money back for investment in technology to allow compliance with regulations that are due. This problem is exacerbated because of the uncertainty surrounding compliance deadlines and a lack of clarity in terms of the regulatory requirements needed.

One way to move forward is to invest in flexible new technologies for the commercial advantages that they can provide now – and leverage the flexibility to adapt to the regulations as they finally come into play. One of our customers has certainly taken this tactic – this way there is some forward movement. Perhaps financial institutions should embrace this regulatory stalemate as the catalyst for a movement towards investing in technology for future gain.

Terry Gibson is Global Business Head, Transaction Processing Solutions, Investment Services at Fiserv.