It is no secret that the financial crisis of 2008 and its aftermath have increased the pressure and scrutiny on the financial services industry.
The Dodd-Frank Act of 2010 changed the U.S. regulatory environment dramatically, and the political fallout continues. Regulatory requirements and the sheer number of regulators and regulations continue to grow. New demands on financial institutions continue apace. Financial institutions, big and small, need to implement a robust regulatory management strategy to address this new environment.
The management of a firm's regulatory agenda requires a comprehensive approach – one that is integrated into all key business and risk management processes. Since regulators focus on mitigating risk across the board, financial institutions need a strategy to oversee regulatory implications that cross functions and business units. This strategy must entail collaboration and coordination across all areas of the company.
Fundamentally, it is always important to remember that regulators want companies to be financially successful and to operate in a safe and sound manner. They share this goal with bank management, shareholders, employees and customers. A successful regulatory management strategy incorporates regulatory requirements, standards and expectations into your standard business goals and operations.
A well-controlled, well-operated financial services business needs to understand its risk and control environment, and it needs a verifiable plan to assess and mitigate risks as appropriate. This is the primary requirement of the regulators as well. At times regulatory expectations and requirements can be unreasonable, or a particular requirement may appear to be tangential to the goals or needs of the firm. However, a financial company that runs its business well and profitably and serves its customers needs to be fully compliant with all laws and regulations.
It is completely appropriate for management to communicate its views and opinions to regulators, especially when it views regulatory policy, actions or requirements as unreasonable. A healthy and productive relationship with all regulatory agencies depends on open debate and discussion. However, it is also necessary to realize when the discussion is complete. Ongoing dissension or dismissiveness is never productive.
Companies should never allow a negative, adversarial culture against regulation to develop within their firm. Beyond the obvious risks of unintentionally sanctioning bad behavior, and inviting more scrutiny (with a “guilty until proven innocent” attitude on the part of regulators), companies that are viewed as uncooperative significantly compromise their credibility in future discussions with regulatory authorities. Companies that take an attitude of partnership with regulators will find their views received and measured on their merits.
Financial firms that navigate the regulatory waters effectively tend to follow these Best Practices: