Volatility in stock markets and global politics is shaping a new era for governance, risk and compliance professionals in 2019, as an era of post-financial crisis reform fades into the distance. It is more than 10 years since the financial crisis caused a massive shock that fueled new regulations to enhance stability and rein in misconduct.
A gradual recovery followed but, over the past 12 months, volatility has returned. This has presented regulators, firms and markets with new challenges. These include renewed attempts to fix failings in the culture of banks, maintaining competing international privacy standards and addressing cracks in bank stress-testing regimes which might lead to an increase in systemic risk.
Regulators and firms still have hurdles to jump to address money laundering and corruption after huge scandals at Goldman Sachs/1MDB and Danske Bank exposed major gaps in systems and controls, ethics and the behavior of senior staff. These have been damaging for the institutions involved and are likely to carry significant enforcement penalties.
Perhaps compliance professionals can be forgiven for thinking that there is no situation political interference cannot make worse. UK Prime Minister Theresa May’s struggle to secure Britain’s exit from the European Union, which only grew messier in 2018, is expected to drag on until the March 29 departure date or beyond.
Banks have planned on a worst-case scenario for their likely reduced access to continental financial markets and a loss of passporting.
Political division is not restricted to the UK. In the United States, there are looming battles between President Donald Trump and the Democrats now controlling the House of Representatives. The skirmishes are on multiple fronts, including financial regulation. The Trump administration enters a third year of pursing a deregulatory agenda, but Democrats promise to fight any further weakening of the post-crisis 2010 Dodd-Frank Act. Diplomatic stresses over newly-imposed Iran sanctions and a U.S. trade dispute with China have both been contributing factors to market gyrations.
The evolution of computing technology will further challenge global regulators and compliance professionals, to bolster privacy, fight cybercrime, govern digital currencies and manage online communications.
The first place to look for significant regulatory development in 2019 is likely to be in Australia, with the publication of a report on February 1, by the Royal Commission into financial sector misconduct. The commission has been a chastening episode for firms, with stories of regulators being misled and independent reports being compromised.
The commission is expected to make recommendations for a range of civil and criminal enforcement actions against institutions and individuals. Financial services firms from across the region will be watching these developments closely as a harbinger of what’s to come in other jurisdictions.
For compliance professionals, 2019 promises to be a busy year with surprises and pitfalls marking a post-crisis transition. In this climate, no one can afford to drop their guard.