Dive into this new report on Regulatory Reform

Sometimes a one page summary just won’t do.

This comprehensive report from Thomson Reuters presents the State of Regulatory Reform 2016 and goes both deep and wide.

It traverses the entire landscape of international regulatory reform, with mainly easy-to-follow analysis.

Plunging into the full 35 page report may feel a large ask for busy compliance professionals. These days, who reads anything other than summaries and summaries of summaries?

That approach won’t work with this analysis. Particularly if you want to gain a picture of the entire regulatory landscape, not merely a narrowly defined segment.

For example, the report draws attention to a number of developments which for certain industry sectors have important practical implications. The US, for  instance, faces a major shift to improving investor protection, such as the proposed fiduciary standard for brokers. the report warns, 2016 is already turning out to be another tough year for compliance professionals–hardly a revelation for those at the cutting edge.

But the report usefully puts all the changes in a broad perspective. This will be helpful for many on the periphery, who need to keep in touch with what is going on.

Culture reform

An interesting section deals with the “thorny issue of banking culture.”

Particularly in the US, senior managers can soon expect to be questioned about

“What progress are you making in instilling strong ethics and values in your organisation?”

They will need to be able to show they’ve suitable systems that create the kind of business environment where ethics and values really matter. This goes well beyond what many in the community of professionals know all about.

Questions such as

“What do you mean by culture?”
“How do you measure culture change?”

are likely to be a big focus in the coming months.

The right cultural framework should aim to achieve certain specifics such as: win full engagement from senior managers, including the board; more effective performance management and incentives; and more transparent staff development and promotion practices–the HR industry should love that one!

The report highlights the perennial challenge of how to measure culture. One issue surfacing here is how to get through to middle managers about the importance of cultural and ethical issues.

“This “frozen middle” remains a real obstacle to cultural reform. It’s in the middle where good intentions of cultural change collide with apathy about values and ethics. Meanwhile, those at this level must live with intense competition and the pressure to be seen as smart and clever.

What this means in practice, is a tendency to select short-term solutions with dubious practices and a willingness to cut corners.

This rather new regulator emphasis on seeking a “culture fix” is indirectly challenged in the current issue of the Harvard Business Review. Jay Lorsch and Emily Mctague dismiss the whole concept of setting out to manipulate culture in the way being suggested for financial services. [1]

Instead, the authors say their research shows changes to the culture mainly arise from improving basic business processes or installing more effective structures in the organisation.

Systemic Risk

When it comes to dealing with systemic risk it’s debateable as to whether there’s currently more focus in the US than the UK in this issue. There continues to be intense concern about this and a growing regime intent on reducing these risks, by installing more onerous compliance obligations.

The report summarises various initiatives which compliance experts need to be aware of that influence systemic risk.

One initiative it highlights is the move to Robo advisers as the “next big thing.” This is using artificial intelligence to offer investment advice to customers. Compliance officers gearing up for coping with the risks from a cyborg invasion need to be aware of rising doubts about such inventions and be concerned about potential abuses.

Shadow Banking

Shadow banking which is non-banks offering financial services outside the regular banking system, is now rising up the agenda for closer attention by regulators.

About time some would say, but it’s a tricky area to penetrate and to understand even for experts, filled as it is with ever-expanding jargon such as “bank-like credit intermediation”.

The report then explains how this sector has in fact shrunk in recent years, and now poses less systemic risk to the financial system.

However it remains one of the current priorities for the regulators.

Much More to come

The report also looks at what’s happening in regulatory reform in UK and Europe, Asia Pacific, and Australia.

The information though not exactly a riveting read, will provide those who want to feel on top of their game with a worthwhile picture of current concerns.

Because the report coves a lot of ground and often in detail it is probably best tackled by looking at specific areas in which you are interested rather than trying to digest the entire works.

State of Regulatory Reform 2016: A special Report, Thomson Reuters,

  1. Lorsch and E McTague, Culture is not the culprit, HBR April 2006

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