"Chaos is good for business."
That was the refreshingly honest take from a senior exec inside a major financial services firm I spoke with recently. (No names and titles, please asked the media relations person as she put her head in her hands).
Of course, this is a no brainer. Back when I worked on a computer magazine, we called the elements of our best cover lines "FUD" -- for fear uncertainty, and doubt. And thanks to Dodd-Frank and the forthcoming Volker Rule, Wall Street is neck deep in FUD.
Although the House of Representatives might be full of pro-Wall Street, anti-regulation members of the GOP, no one thinks that Dodd-Frank is going away. It may be weakened and some regulators may be starved for funds to do their job, but the sweeping regulatory law is a fact of life and investment firms large and small will have to deal with it or pay some steep fines.
The uncertainty comes in to play when firms try to figure out the specifics of the new law. For a piece of legislation that weighs in at 800 plus pages after it finally churns out of your laser printer, there is an enormous amount of detail missing from the regulations.
Our truth-telling friend said that firms call him to ask him for his advice about the forthcoming regulations and he asks them, "What do you think?" It's obvious that leading players in the industry -- smart men and women, all -- aren't really sure about letter of the new law.
Take prop trading. Our friend asks what happens if you have a client's money on your books and they want it taken care of in specific time frame, say a week? Who owns that risk? Is it their money or the banks? He is working at the behest of the client but where is the money exactly?
No one has thought about this yet, he told us. (I just gave you a major clue: the person we interviewed was male.)
This lack of knowledge means that firms will get their back offices in order, clean their data and make it available for regulators and hope that they aren't selected for an audit. Another exec at the same company says that most likely one major bank will be hauled before the SEC, which will then make it an example for the American people and the rest of the industry. And those reports that once took weeks to generate will have to be handed in within hours. That means tons of grid networks and reams of data to calculate the risk and file the report. (If you're not on the cloud, you're stuck in the mud.)
The one thing that surprised me was the answer to my question: who has greater transparency demands -- the EU or the United States? I assumed it would be the FSA and Luxembourg but he said the USA by far. Perhaps this is why we fell so quickly but climbed back to positive numbers in short order.
All of this chaos and uncertainty is a perfect for consultants. And it's one business where you don't have to be held to your predictions. If your suggestions fall short, you have the standby excuse: The paradigm shifted.
Which means, I didn't foresee this recent change.
It's been a pleasure working with you. See you at Sifma. My invoice is in the mail.
Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio