PostBrexit Uncertainty On Financial Regulation
- What is the scope of the possible damage Brexit will do to the planned capital markets' union?
- What are the current Compliance concerns on the Market Abuse Regulation (MAR)
- Will the overreach of the post-crisis financial regulation continue to have an adverse impact on growth?
Almost a decade after the credit and financial crisis, the ripples and aftershock of lower-magnitude financial tremors continue to affect the global corporate and financial community. The global economic aftershock has stabilised the faults of the original subprime problems that was the epicentre of the turmoil. However, the results from the sudden change in trust, ethics and integrity stress that occurred between the financial institutions and the oversight authorities brought on by the subprime disaster has led to a prolonged period of low, even negative interest rates, and dried up the secondary bond market and a tsunami of check-the-box regulatory compliance.
GRC issues that harboured the main global financial shocks
In spite of the efforts the shaking intensity associated with economic aftershocks have resulted in some unsolved financial compliance issues. The fragility of several corporate and country economies with the contradictions attributed to the lack of liquidity is one cause such as postcrisis aftershock. However until concrete measures are taken to stabilise the financial structures, the one-off rescue efforts may further obstruct and destabilising the delicate economic structure. The new regulatory compliance standards influence the stress levels of the financial institutions who are coping with the damage.
In this article, we focus on the uncertainty on MiFID II and other financial regulatory compliance regulation and issues. PostBrexit uncertainty aside, the MiFID II delay, causes speculation in the financial markets that some of the most time-consuming check the box regulation requirements may be revised.
Regulatory compliance is more worrying than required
For MiFID II implementation there remains an enormous amount of work left to be done because it primarily affects all stakeholders. At the 10th annual European GRC Summit, we will provide an update to the proprietary trading community on MiFID II and other financial regulatory compliance mandates. Ater the implementation deferral in about a year The European financial watchdog, ESMA, is expected to release final technical standards. One of the big concerns for all financial institutions is the uncertainty regarding firms dealing with the legislation in such a significant compliance package as MiFID.
The worry is not just about getting ready to comply with new rules and regulations that all financial companies are obliged. The concern that most financial services companies have is that regulatory compliance is a greater burden than needed. The current predominant approach taken is the simple processing of documentation to satisfy the national regulatory oversight authorities. That is why The Copenhagen Compliance Regulatory Framework addresses the cumbersome compliance concerns created by the fragmented and unstructured approach to compliance.
Copenhagen Compliance suggestions
The financial institutions that started on the 'automation' journey are now set aback with the planned deferrals and the Brexit stalemate. Later when the dust settles down, the financial institutions will once again dash with time to comply with the enormous amount of deferred GRC work done by year end 2017-18. We suggest that companies now deal with the accomplishment of the real compliance issues during the current impasse and focus on a structured framework approach for compliance;
- For all financial services institutions and others, enterprise risk management is paramount. Lack of structured and documented risk management processes keeps the regulators unaware of the business mechanics and disclosures.
- Therefore, clarify the explicit and implicit risk management components to comply
- If the regulatory risks ultimately result in a "check-the-box and documentation exercise" financial institutions will have to increase their compliance budget by two digits.
- Develop customised technical IT standards to build in a degree of proportionality. Regulators have a one-size-fits-all approach and do not question whether the requirements are more suited to the banking sector in general, or investment companies with many or few clients.
- Outsourcing some of the regulatory issues can be an option.
- Define the technical standards and the degree of proportionality, to some regulatory compliance obligations, are binary in nature that everyone will have to comply with.
- Ensure a built-in measure of "future-proofing" the current regulation. Descriptive rules such as those related to technology development are obsolete in a few years. The Copenhagen Compliance approach to Forward Integration can be a preferred option.
- There is no excuse for non-compliance with a third party and changes in counterparty relationships. The added complication that some vendors are unregulated can modify the way the industry works together.
To have an effective compliance program, any organisation must establish and maintain an organisational culture that encourages ethical conduct and a commitment to compliance with the law. Therefore, structure the MiFID and other regulatory implementation by ensuring that senior management can exercise effective oversight;
- Start the automation journey for direct reporting to authority to the governing body or appropriate subgroup.
- Automate the update of written policies and procedures, monitor training and education and ensure active lines of communication are established.
- Develop own customised GRC standards, for disciplinary guidelines, internal compliance monitoring and the right response to detected offences with corrective action plans.
- Above all include self-assessments and modification of the compliance and ethics program, with periodic risk assessments.
For more current information on the above and related regulatory compliance, subjects attend the Brexit Financial Services workshop at the 10th annual European GRC Summit. www.grcassembly.com
