Today, April 15, is the day when all Americans get a taste of what it’s like to comply with a regulatory deadline. This is the day that all personal income taxes are due to the Internal Revenue Service (IRS). Of course, extensions can be requested but every American is required by law to pay taxes.
Most Americans pay their taxes with the knowledge that they are getting something from the government, and that justifies the obligation.
Yet when we apply that thinking to the regulatory reform of the financial markets, the analogy falls apart. This is particularly clear at the Sifma Ops 2015 conference in sunny San Diego. (I will be presenting a full wrap of the news from here on Friday.)
Regulatory reform and compliance have so permeated operations that they are almost becoming one and the same. Ops is where the regulatory reporting requirements for the CFTC, SEC, Finra, the IRS and others have to be hammered out and efforts are sometimes duplicated. In addition, systems and operations are being revamped to comply with the Legal Entity Identifier (LEI) standard, the Foreign Account Tax Compliance Act (FATCA), the fine print of the Dodd-Frank Act, the impacts of the European Market Infrastructure Regulation, Basel III, and the Volcker Rule – just to mention the major areas of concern.
But, more than five years after the onset of new regulation, what are securities firms, and the industry getting for meeting these requirements?
Too big to fail for many of the top firms is still a reality and some would argue is worse than the depths of the Great Recession. Firms of all sizes are paying record non-fines and penalties as some of the more audacious crooks are being carted off to prison. Politicians are grandstanding on the left and the right when it comes to Wall Street reforms and have yet to propose intelligent fixes. All the while, the regulators have been acknowledging that they need to do a better job of coordinating their new rules but they truly haven’t gotten past turf battles, bureaucratic infighting and a lack of resources.
Ultimately, firms are getting very large bills for compliance, and given how expensive regulatory reform has become, I would urge the industry to consider a new measurement: the total cost of regulation (TCOR).
Regulators need to know the full impact of their actions and the TCOR should include the duplicated and wasted efforts, the hours spent sorting out what a regulation means, the IT expenditures, the labor costs, the legal costs, and the opportunities lost because of an over-emphasis on an endless flow of new rules.
But there may be a silver lining as Ops staff struggle to make certain that the firm stays on top of new regulations and guidances.
“The job description of a successful operations professional today is different from what it was in the past,” says Randy Snook, SIFMA executive vice president, business policies and practices, in her remarks at Sifma Ops 2015. “Expectations are high – the ops professional still needs to understand the processes and infrastructure that support the industry, yet you also need to know the avalanche of new rules governing the industry, how to effectively manage relationships with third party solution providers, and the technology that underpins our industry – all through the lens of ensuring compliance.”
Possibly the only good thing to come from this age of regulation is that Ops staffs have a new, more influential role and an enduring new respect from their peers.
Need a Reprint?
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