Regulation and compliance

- Risk magazine staff
- 01 Jan 2009

Regulators have a busy agenda over the coming year. The financial crisis has exposed various failings in risk management within banks, as well as in the supervision of financial institutions - and regulators are now looking at how best to plug the gaps.

One obvious starting point is the Basel II Accord. A year on from the full implementation of the new regulatory capital framework, various changes are likely to be made to incorporate the lessons learned from the crisis. The Basel Committee has already started to improve the treatment of risks in the trading book with its incremental risk charge, and has published new guidelines on liquidity risk. Further changes are expected - in particular, the framework is likely to be modified to make it less pro-cyclical. However, calls for Basel II to be scrapped altogether are unlikely to be heeded.

Elsewhere, there has been plenty of talk about a central clearing house for credit default swaps, with the Federal Reserve Bank of New York leading the charge. Several platforms were on the verge of launching as Risk went to press - and the initiative is likely to be extended to other asset classes as the year progresses. There is, though, doubt among senior bankers that this will solve all the market's ills, as some observers seem to think.

The revelation of an alleged fraud in December by Bernard Madoff, a New York-based broker, has also led to renewed calls for greater oversight of the hedge fund sector. The US Securities and Exchange Commission has tried - and failed - to enhance its supervision of the sector in the past. This time, there appears to be the political will to push something through. Quite what shape any potential regulation will take - and whether it will be effective - is unclear.

There's plenty more for regulators to work on - the future of mark-to-market accounting and the role of rating agencies, to name just two. The important thing is regulators aren't bounced into making quick decisions by their political masters and co-ordinate with each other to avoid duplication.

Nick Sawyer, Editor

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