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The "living will" process gives financial institutions the opportunity to, among other things, frame policy, improve operational efficiencies and educate the market, business units and regulators.
December 7 -
Banks often choose not to bring questions about products, terms and marketing to regulators, citing fear of retribution from front-line examiners. Creation of the CFPB separates consumer policymaking from examination activities, offering hope for open, clear communication.
December 4 -
In interviews with two dozen bankers, regulators and outside experts, most point to a significant improvement between how bankers and examiners interact.
June 8
The enduring legacy of the credit crisis of 2008 is the raft of new regulations to which financial services firms are subject.
This year, we've initiated an annual report that takes a comprehensive, global look at the entire deck of financial services regulation coming into effect entitled "The Global Regulatory Outlook."
While our daily business is focused on addressing the relentless details of the regulations themselves, performing this survey-based research was extremely helpful in gaining insights around which way the wind is blowing, where there might be a "fix," and, consequently, how to get the regulators and those regulated to work together toward a common benefit.
The 88 financial services chiefs and C-level executives we interviewed shared whether they thought regulation was working, measured through the lens of a broad range of questions, from "Do you believe that recent financial services regulations will have an effect on the stability of the financial services world?" to "Will regulation have an impact on the reputation of the financial services industry?" to "In your opinion, what would strengthen accountability and rebuild trust in the industry?"
Perhaps the finding that stood out most was that the majority of those surveyed (63%), believed regulation has had little impact on the stability of the global financial system and would not help prevent similar crises in the future. Nor did the majority of our respondents (88%) feel that current regulations would result in greater trust in the financial services industry.
What we found in the study was a perception of confusing interconnectedness between regulations, a lack of clarity in the regulations themselves and a schism in communication between the financial institutions and the regulators that needs to be addressed. One of our contributors noted off the record, that "the CEOs of large banks don't want to put their heads above the parapet in commentating on regulation."
There were differences in attitude between the U.S. and Europe, of course, the latter being much more in favor of uniform global regulation, though that belief was held by some U.S. executives too. The majority felt that while the need for clarity was primary, existing regulation could be used more effectively. And better regulatory coordination among the various authorities was considerably preferable to another wave of complex reform. As Adam Kaufmann, Head of the Investigation Division of the New York County District Attorney's Office, points out, "the path ahead is confusing."
Kaufmann says that historically, financial institutions have been great allies of the law, often leading to successful investigations, not just of directly-related crimes like check fraud, but also of more elaborate schemes involving narcotics and human trafficking. But banks and other financial institutions don't appear to share the same open relationship with the regulators as they have with law enforcement. In their responses, our interviewees suggest that most bank employees won't voice complaints against regulation for fear of "biting the hand that can bite back harder."
In our study, it emerged that regulators need to create an environment where firms are not afraid to speak out. If firms feel that speaking out will put them at a disadvantage, that will in turn undermine confidence in regulation which is brought to bear without industry buy-in. Perhaps they should follow the lead of what we're starting to see happening in the SEC, and bring in more employees with experience in the industry, so they can begin to speak the same language and bridge the communication gap.
On the part of the institutions, they need to come up with clearer explanations of their business models. For instance, where they are profitable and less profitable, who their key competitors are and where the main areas of risk reside, as these are some of the factors driving their business decisions. This in turn gives the regulator a sense of how management thinks and how it measures key vulnerabilities. Clear definitions will ensure firms don't get their hands tied by regulation, and allow them to get back to protecting the investor. By making this two-way communication happen, a virtuous cycle is set up that can eventually result in a return to trust in the financial services industry.
Julian Korek is a founding member of Kinetic Partners. He can be reached at
