Coping with the uncertainty of the Dodd-Frank Act and the newly-formed Consumer Financial Protection Bureau (CFPB) will be among U.S. financial institutions' foremost concerns in 2011, according to the experts at Wolters Kluwer Financial Services.
Heather Czermak, director of consumer compliance for Wolters Kluwer Financial Services, feels that the financial services industry is taking a wait-and-see approach to addressing the passage of the Dodd-Frank Act.
"Financial institutions are watching their federal regulators closely to see what their next moves will be in terms of instituting requirements," says Czermak. "But that doesn't mean they're sitting idly by. To prepare themselves for the imminent changes to come, many are conducting thorough compliance and risk management program reviews to help ensure they'll meet any new requirements thrown their way."
Edward Kramer, executive vice president of regulatory programs for Wolters Kluwer Financial Services, agrees. Kramer has also seen institutions carefully evaluating their staffing levels and qualifications to make sure they are ready to comply with the act's new requirements, and more specifically, oversight by the new CFPB.
"The CFPB's rulemaking authority doesn't just apply to banks and credit unions," says Kramer. "It also applies to mortgage and auto finance companies and essentially any financial institution that is considered a 'non-bank.' This authority could make the CFPB one of the most powerful regulatory agencies in the U.S. and result in significant compliance and operating costs for institutions of all sizes and types."
In addition to the Dodd-Frank Act, the U.S insurance industry has experienced a dramatic amount of regulatory change in 2010 affecting all lines of business and will likely continue to do so in 2011, according to Kathy Donovan, senior compliance counsel, insurance, at Wolters Kluwer Financial Services. During the first three quarters of 2010, more than 18,000 state and federal laws or regulations that affect the U.S. insurance industry were changed or created.
"Healthcare reform was the key area of regulatory focus and impact for insurers this year," says Donovan. "Health insurers faced multiple policy form revisions and, as an industry, witnessed some fairly large market conduct fines assessed to individual companies."
One thing institutions in the insurance, banking and securities industries will need to pay attention to in 2011 is managing compliance, operational and financial risk more holistically, according to Todd Cooper, vice president and general manager of enterprise risk compliance for Wolters Kluwer Financial Services.
"The hard part for institutions is getting all employees to make risk management a needed part of their everyday duties," says Cooper.
He cites leadership from the board of directors and executive management in instilling a culture of risk management as one factor for success. He says implementing sound enterprise risk management policies and procedures is another.
"But that's not enough," says Cooper. "You can't just trust that your employees are doing what's needed to meet regulatory requirements and help you effectively manage risk. You need to test. You have to validate that those things are happening or you could be in for a nasty surprise when it comes time for your next regulatory exam or to evaluate your financial losses for the year."
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