Even companies not in the regulated financial industry will likely have to follow the regulations sure to come, says Craig Carpenter, general counsel at Recommind, a company that offers search-oriented compliance services. "Anybody that deals with brokers, banks, and credit-risk-based assets will have to be involved," he says. That includes everyone from hedge funds and insurers like AIG to municipalities and consumer companies like General Electric and General Motors.
Carpenter believes companies are also about to face a new wave of litigation due to the huge losses. That means IT professionals who also have legal expertise will be in great demand. "The competition for personnel will be from law firms, their clients and vendors all competing for the same talent," he says.
New regulations will touch a wide range of business operations. There will be regulatory reporting requirements with tighter scrutiny and an increased level of detail than what is required today, says Sinan Baskan, director of business development for financial services at Sybase, an enterprise software provider. For example, up until now, a company was not required to report on financial results by product line or business unit. But this will change, he says.
Brokerages will need to redefine and scale up technology significantly
In addition, Baskan expects that regulatory agencies will require that the prime broker executing trades on behalf of a client will have to prove that it did the best execution rather than the fastest. That's because regulators believe that financial services providers deliberately created pricing inefficiencies that favored themselves at the expense of their clients. The new regulations will try to force financial providers to put clients' interests first by ensuring that pricing reflects actual value.
As a result, now "they will have to show that they got the best price within a certain time window allotted to them by the client," Baskan says. To do so means the IT organizations at the brokerage houses will have to "reconstruct the transaction cycle" accordingly. That means a lot more technology needed to follow a whole new set of audit trails for tracking and monitoring trades.
The point of the likely regulations is to re-establish the connection between the price of the security that is traded and the underlying asset that supports that security, like real estate. Getting an accurate price connection requires computing of lots of data from different sources, Baskan says, which will increase demand on IT to implement the underlying methodology.
The expected new regulations will more deeply affect operations than those of Sarbanes-Oxley, which targeted the CFO and other C-suite executives. Baskan expects the new requirements to apply to all transactions in financial and retail accounts. And that means more work for IT, he says: "The [technology] infrastructure has to scale with the increasing productivity."
Global regulations likely to make compliance more expensive for IT
As governments discuss how to reshape regulations to prevent a recurrence of the current financial meltdown's causes, global or at least multinational regulations are likely, in addition to local rules. If this comes to pass, rationalizing various worldwide banking systems could become a huge headache and challenge for IT.
"When you have a U.S. bank doing business in London or Tokyo and the U.S. says it is going to back some of these toxic assets in a different way than Asia, nobody has figured out where all these rescue plans overlap with each other," says David Wright, director of financial service for Software AG, an enterprise software provider.