Since the financial crisis, the SEC has charged 157 firms and individuals, securing $2.68 billion in penalties and other sanctions, reports The Wall Street Journal. The tally includes 66 chief executive officers and other senior corporate officers.
Recently, the Dodd-Frank Act was invoked by the Commodity Futures Trading Commission (CFTC) to fine a high frequency trading firm for market manipulation. It was the first time those regulatory powers were used to charge a trading firm, and it certainly won't be the last.
Tangible and hard-hitting punishment for financial firms are really happening, and it's only the beginning. With every sentence, financial firms are looking inwards to make sure they're not making headlines of their own.
Surveys Highlight The Problem
According to a recent Deloitte Touche Tohmatsu survey, which polled 86 chief risk officers from banks, insurers and asset managers, less than half of large institutions consider their operational risk technology platform to be extremely or very capable, and 40% are concerned about the capabilities of their firm on the management of risk data. Furthermore, nearly two thirds of those surveyed report an increase in spending on risk management and compliance.
The situation has not changed much from a year ago, when a 2012 Linedata Survey of Best Practices in Commercial Lending asked more than 180 C-level managers in leading regional and global banks about their greatest challenges and concerns. According to a recent press release, "the ability to monitor portfolio credit risk and to track exposure across business units were identified as among the most pressing issues facing the institutions surveyed."
In its recent report, "The Trade Surveillance Compliance Market and the Battle for Automation," Aite Group predicted compliance technology spending will increase by 35% between 2012 and 2015.
A Global Shift
"Risk management is one of the hottest issues with our customers right now, even our prospects in the banking world," said Deb Biswas, executive vice president of sales at Linedata in a phone interview. "Our clients budgets are all skewed towards making sure regulations are met and reporting can be done. They're taking it out of other areas of their budget and putting it here because it's what required. The cost burden is too high if they're not compliant so it's worth their while to refocus. It's no longer discretionary."
Interestingly, Biswas says this is an issue that goes well beyond North American clients, and the push for risk management solutions in the credit world is as strong in Europe as it is in Australia.
"The need for better risk management solutions across the board has been driving 90% of our deals in the past three years. It's an interesting situation, it's not what drove our product 5 years back, there's definitely been a sudden change," says Biswas. "Before we were more focused on efficiency issues. Today everything has moved to risk management. The next step is regulatory pressures. How do you mange credit and operational risk? How do you ensure that whatever data is in system is clean and ready for reporting to the government? Report requirements keep changing, and if it's all manual, you have to scramble to be compliant."
Along this vein, Linedata recently announced a new risk management solution for lending and equipment finance. According to the release, the newest version of Linedata Capitalstream is "designed to enable bank lending and equipment finance teams to meet the growing [regulatory] challenges of risk management throughout the credit process as well as the need to assess commercial customer relationships across multiple products and lines of business."
Biswas explains "banks all want to apply uniform credit quality and manage risk, and manage risk centrally. That's what our business is able to do."