January 26, 2016

Thomson Reuters Annual Special Report on the State of Regulatory Reform Reveals Potentially Diverging Transatlantic Positions on Regulation in 2016

UK Rulemakers’ Stance May be Easing, but Compliance Officers See Personal Liability Rising

NEW YORK / LONDON, January 26, 2016 - Thomson Reuters has published its sixth annual State of Regulatory Reform special report which shows that despite differing local conditions, compliance officers are wondering when the regulatory tide will turn decisively after years of post-financial crisis rulemaking.

The regulatory burdens and personal liabilities they face are expected to increase throughout 2016 but there are conflicting signals from the world's main two financial centers, London and New York, according to the special report. Eight years after the collapse of Lehman Brothers, while there are signs in the UK of an end to political antagonism toward the banking community and of a more pragmatic approach to financial regulation, the opposite is the case in the United States in an uncertain election year when Wall Street is politically unpopular.

In the 2016 special report, Thomson Reuters journalists covering financial regulation in London, Hong Kong, Singapore, Perth, Toronto, New York, Washington, D.C. and beyond have analyzed the likely regulatory trends prevailing in their regions as well as globally for the year ahead.

“Our special report has become an authoritative guide for compliance practitioners and senior directors in financial institutions worldwide,” said Alexander Robson, managing editor, Regulatory Intelligence, Thomson Reuters in London. “It is going to be another hard year to address for regulatory professionals.”

"Regulatory risk is a top concern among financial industry leaders, and this report is a valuable tool in helping them to formulate a global risk-management strategy for the year," said Randall Mikkelsen, North American managing editor, Regulatory Intelligence, Thomson Reuters in Boston.

Highlights from the Thomson Reuters State of Regulatory Reform 2016 special report include:

Banking culture reform in U.S. confronts hurdles: Thorny issues of banking culture will be an important focus for U.S. financial regulation in 2016. Senior managers at both large and small firms can expect to be scrutinized about what progress they have made toward instilling strong ethics and values, and will need to be able to demonstrate to supervisors that they have policies and procedures in place to  prevent misconduct.

Focus on systemic risk increases obligations for U.S. asset managers: U.S. asset managers and registered funds will be faced with more compliance obligations and costs in 2016 as the Securities and Exchange Commission works to monitor and reduce systemic risk across the entire financial system.

U.S. anti-money laundering regime set for upgrade as Islamic State adds urgency: As the battle against the Islamic State raises the banking industry’s role in security policy, U.S. financial institutions and regulators face multiple demands in 2016 to strengthen financial-crime compliance. They will need to address a pending U.S. rule requiring that they know more about their customers, and a push to bring investment advisers into the anti-money laundering fold. Challenges will include scrutiny from an international task force and the delicate balance between serving legitimate, profitable customers and "de-risking" to abandon business lines where illicit transactions are rife.

UK regulators insist post-crisis regulation is not a return to the pre-crisis playbook: Having been accused of (wholesale) "soft-touch" market regulation leading up to the financial crisis, the UK authorities are keen to explain that their new more market-friendly approach is not a return to de facto self-regulation.

Stressing individual accountability could alter decision-making processes at top of banks: Regulators and legislators face the uncomfortable prospect that the imminent arrival of the UK's new senior management regime may bring about excessively cautious and defensive behavior on the part of some managers, while undermining collective decision making by banks' executive committees and boards.

FCA fines to remain high in 2016: In 2014-15, the UK Financial Conduct Authority's administered fines reached £1.4 billion, marking a fiftyfold increase in seven years. While this level of growth is unlikely during 2016, there will be ongoing oversight and tangible regulation.

In Mark Steward’s first year at the FCA as the new head of enforcement, he will seek to establish himself and build on the work carried out by the enforcement division over the past few years. He may use the FCA's newest tool, the Senior Managers and Certification Regime (SMR), to make a statement in the market.

The regulators will contest the UK Court of Appeal’s narrower test for deciding if an individual has been identified prejudicially in a final notice and therefore given third-party rights.

To read the Thomson Reuters 2016 Special Report on the State of Regulatory Reform, encompassing all regions of the world, go to https://risk.thomsonreuters.com/special-report/state-regulatory-reform-2016.  To learn more about Thomson Reuters Regulatory Intelligence, please click on: https://risk.thomsonreuters.com/products/thomson-reuters-regulatory-intelligence   

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Lemuel Brewster
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Mark D. Harrop
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