In order to protect customers and the world’s economies from toxic assets, financial services are becoming required to take part in some rigorous new compliance. Get the low-down on Basel III, Insolvency II and Dodd Frank, and find out about the IT opportunities it is creating.
The mountain of compliance work preoccupying financial services firms is creating a bonanza time for IT professionals with the right mix of skills and experience. In essence, the new regulations are all about greater transparency of investments and implementing more robust trading systems and data capture.
“In the past compliance was about box ticking – showing how a product or report adhered to the rules,” says PJ Di Giammarino, founder of the think tank JWG. He reckons that this emphasis has now changed, and the focus is now about understanding how to share compliance data across the business to improve the bottom line. “People who have learnt bread and butter inside a bank are now being pulled into regulatory governance roles and commanding top jobs”.
Capital market concerns
Banks are now setting up completely new project teams, who are focusing on the development, recovery and resolution plans to meet both current and anticipated regulatory requirements. “This is driving exceptionally strong demand for project and programme managers at director level and that demand will trickle downwards” explains Edward Ekins, managing consultant with FS specialists, Twenty Recruitment.
On the wanted lists are business analysts and project managers who will review the current state, provide the remedial action plan and can implement the changes. Further down the chain are developers who can implement the increased functionality to the pre-existing systems and ensure compliance with the new regulations.
Anyone with experience of diagnostics, project planning and implementation around Markets in Financial Instruments Directive (Mifid), Sarbanes Oxley, Basel or regulations around liquidity management are also going to be hot property.
In the insurance world, a survey by Northdoor consultants suggests that 26% respondents believe the industry isn’t on track with Solvency II compliance, and another 45% weren't sure. Many parts of Solvency II will require considerable support from IT to the business. The following IT actions are recommended by Northdoor:
- Define and develop data dictionaries to ensure the data used is reliable, controlled and accurate.
- Utilise document repository and collaboration software, such as SharePoint.
- Establish and document business processes, including an audit trail for tracking adherence.
- Produce and substantiate reports and disclosures documentation.
- Identify data security and privacy needs and improve deficiencies if detected.
- Central to all the requirements above is effective data management and systems documentation.
The big compliance projects
The living will concept is for banks that have both investment and retail arms – it’s a recovery and resolution plan to wind up banks and dissolve toxic assets in a matter of days rather than the long drawn out Lehman administration process. It is clear that there will be some form of regulation around resolution planning and the banks are already pre-empting that regulation.
A US regulation that became law in August 2010. Key aspects of the bill include:
- Consolidation of regulatory agencies.
- Tools for managing financial crises.
- Consumer protection reforms.
- Greater transparency of derivatives.
One aspect of the legislation, the Volcker rule, bans banks from proprietary trading and limits their investments in private equity and hedge funds.
In summary, the draft aims include bolstering the levels of liquidity and amount of buffer capital, and to increase levels of transparency of transactions. Four key components include:
- Introduction of a leverage ratio.
- A framework for counter-cyclical capital buffers.
- Measures to limit counterparty credit risk.
- Short and medium-term quantitative liquidity ratios.
Compliance deadline- December 31, 2012
Solvency II is a It is a fundamental review of the capital adequacy and consists of a set of regulations specific to insurance companies operating within the EU. It enhances existing legislation aimed at creating a "rescue culture", that saves insolvent companies before their assets are stripped and distributed to creditors
Compliance deadline: insurers need to comply by end of 2012.
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