September 14, 2010
More Regulations Pain or Panaceas?
Risk Management landscape has changed dramatically after the recent financial calamity, everyday you encounter white papers , Point of View and talks by experts on what and how Risk Management should look like post crisis etc. Capital Market Industry is waiting eagerly for the new set of regulations that are going to hit their shores soon. New Regulations may be required to prevent such calamity again but are they the only remedial actions? Shouldn't the regulators be more proactive rather than being remedial and passive in their actions?
The regulator's failure to act swiftly when the crisis brewed was cited to fragmented information they had in possession. Instead of focusing on bringing lot more regulations they need to scale up and transform their surveillance activities so that such failures don’t happen in future - Millions of jobs lost , Trillion dollar wiped out , thousands of family had been thrown to huge difficulties which has been painful and disastrous for mankind. Introduction of more regulations is not the only panacea. To control speeding in the highway if one puts too many speed breakers the consequence may be disastrous, it is wise to have better surveillance in the form of hidden cameras or patrolling cops to capture the potential law breakers. One of the possible outcome of more regulations could be that the cost of compliance would be high and can bring huger margin and profit share to the industry and it may seek more innovative ways to manipulate.
The regulators have to ensure that their IT systems have enough depth and breadth backed by strong analytic model to capture slightest of tremor across the globe which can threaten the market in future. The regulators need much stronger coordination and networking which should lead to sharing of data and information at ease. They need to run similar program like CAAP (Capital Adequacy Assessment Program) not to test Capital adequacy but to test the strength and robustness of their IT systems and ability to share and integrate with systems of other regulators at ease etc. If a regulator decides to run and operate in silo manner then capturing Systemic Risk (which can span trans border, originate and distribute across geographies) would become a challenge. With over 9 Million Instruments being traded in 250 exchanges spanned over 140 countries stronger coordination and cohesiveness among regulators are imperative need for the success and future of financial markets. Strengthening the Regulators network globally along with data and information sharing real time basis would create better surveillance infrastructure globally which can secure and protect the markets better.
Looking from a positive affirmative perspective instead of creating more regulations regulators should work with the respective government to ensure that Banks or financial institutions that develop good risk practices get better Tax breaks, incentives, higher Credit rating etc. Last but not the least many Banks that embraced Basel 2 had fallen into the whirlpool of Mortgage crisis, similar analogy can be drawn for software companies who embraced ISO 9000 or CMM levels produce often buggy products/solutions/services. Difference between Embracing and imbibing lies the answer.
Posted by kb0905 at 01:55 PM
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