Jeff Jinnett: Proposed Financial Services Regulatory Reforms (Part II): Possible Business and IT Impacts

In our last blog posting, we summarized the Obama administration’s proposed financial services industry regulatory reforms, as set forth in its “New Foundation” white paper[1]. The following are some of the possible business impacts of the changes, if enacted into law:

  • For hedge funds and private equity funds (and their advisors) required to register with the SEC, this may entail new requirements with respect to record-keeping, disclosures to investors, creditors and counterparties and regulatory reporting

  • Non-banks determined to be Tier 1 FHCs by the Fed may face higher capital, liquidity and risk management mandates imposed on them and would have limitations place on their commercial activities – implying an increased role for Chief Risk Officers

  • For Tier 1 FHCs with broker-dealer or insurance subsidiaries, the Fed could impose more stringent prudential requirements on the subsidiaries than the subsidiaries’ primary regulators – a change from the Gramm-Leach-Bliley Act framework

  • Industrial loan companies, credit card banks, thrift holding companies, trust companies and other “non-bank banks” would be regulated under the Bank Holding Company Act, thus limiting their commercial activities

  • In order to reduce their susceptibility to runs, MMFs might be required to obtain access to reliable emergency liquidity facilities from private sources

  • Legal documentation for securitization transactions could be required to be made standardized and transparent

  • Asset backed securities issuers could be required to make ongoing reports to investors and credit rating agencies about loan level data, the nature and extent of broker, originator and sponsor compensation and risk retention for each securitization

  • CCPs clearing standardized OTC derivatives could require robust margin requirements as well as risk controls (e.g., adoption of business conduct standards, increased record-keeping and reporting) and the use of transparent electronic trade execution systems

  • The CFPA would be able to restrict or ban mandatory arbitration clauses, possibly resulting in increased litigation in courts

  • CFPA consumer protection rules would not preempt more protective state laws and national banks could be required to comply with consumer protections laws in all 50 states

The following IT impacts may result from the proposed new regulatory regime:

  1. There may be an increased need for business intelligence applications and tools in order to support new risk analytic and reporting requirements

  2. Enterprises might need to improve their document and record management capabilities and move to a standardized, enterprise-wide platform in order to comply with the enhanced record-keeping and reporting requirements

  3. Compliance systems may need to become semi-automated or fully automated in certain cases due to shortened reporting periods

  4. High performance computing (i.e., parallel computing systems) may need to be utilized to produce risk models and calculations on a timely basis

  5. Greater controls of unmanaged end user computing applications (e.g., spreadsheets, Microsoft Access databases and forms) may become necessary in order to reduce the risk of fraudulent or faulty data being incorporated into financial reports produced for regulatory filings

  6. E-discovery platforms may assume greater importance due to the movement away from arbitration of securities disputes towards more expensive, discovery-intensive litigation in courts

  7. XBRL-enabled systems may assume greater importance in order to support SEC filings and standardized securitization documentation

  8. Communication and collaboration portals might morph into compliance and risk management portals linked to regulatory databases

  9. Insurance companies and other non-bank financial institutions identified as Tier 1 FHCs and coming under supervision by the Fed may begin to adapt compliance, capital, risk and other systems typically utilized by banks for use in their environments

In light of the complexity of the regulatory changes proposed in the New Foundation White Paper and the significant business and IT impacts of those changes, we plan to make additional postings that examine some of the specific New Foundation proposals, with updates as to what legislation in the U.S. Congress has been introduced to implement the proposals.

[1] See



Jeff Jinnett is Governance, Risk Management & Compliance Industry Market Development Manager, US Financial Services Group, for Microsoft Corporation.  Mr. Jinnett is a former partner of the international law firm of LeBoeuf, Lamb, Greene & MacRae, LLP (now Dewey & LeBoeuf) and has experience in advising Fortune 500 companieis in the financial services industry on the use of technology to support corporate governance, risk management and compliance programs.  Mr. Jinnett has testified as an expert before committees of the US Senate on issues relating to the intersectiion of law and technology.  He is a member of ARMA (a records and information management professional association) and the Society of Corporate Compliance & Ethics (SSCE).

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