2009 CIO Challenges: Regulation
Read more from WS&T's expert roundtable on the challenges CIO's face in 2009.
WS&T: Most pundits are expecting more regulation for financial services over the next few years. What should firms expect?
Rob Hegarty, TowerGroup: Everyone we are talking to is taking a similar approach. The dust has to settle in Washington before we can really understand what is going to happen there. Once [the new administration is in place], the key thing people are looking at is: what is the regulatory structure? What role is the Fed going to play, what role is the Treasury going to play and how are they going to do that globally? In other words, how are they going to interact with the [U.K.'s] FSA ... and everybody, including China and Hong Kong? There are serious macro issues that need to be resolved in the regulatory environment. In the meantime we are going to see some minor legislative moves made in order to increase regulation. But a lot of the bigger-picture stuff has to settle down before we see that. We don't see massive regulatory change until the second half of 2009.
Julio Gomez, Gomez Markets: The whole idea of living in interesting times is a complete understatement for what we are living in now. This is the golden age for cocktail chatter. There is almost nothing that you can pull out of the sky in terms of current events that isn't hugely impactful. We are not living in interesting times; we are living in epic times. With a new administration coming in and on the heels of record intervention by the central banks around the world, I have almost forgotten about the $700 billion bailout. That is almost like old news. There is no doubt that more regulation is coming, but there is going to be vigorous debate about how much and in what form. The depth and breadth of this crisis is far greater than Enron and WorldCom, but do regulators want to overreach like they did with Sarbanes-Oxley? The cost of extensive regulation is something they are going to have to look at very closely.
Robert Iati, TABB Group: I expect more-restrictive regulation, but I don't know if anyone knows for certain what [the regulations] will be. Some of the clear focus will be on hedge funds and restricting some of the more complex and seemingly risky strategies that they take in. One opportunity for regulation will likely be around short selling and reducing the amount of risk on the short side and reinstating the uptick rule. Another area will be around broker-dealer risk capital and, as the investment banks now have to be regulated more like commercial banks, there will be leverage restrictions on what they can do, and that will take capital out of the market. And the impact on technology will be that technologists will need to focus on different methods to make money and to provide liquidity to the markets. But that won't come from the technology side. It will come from the business side as it tries to direct what types of technology investment are needed. Overall, regulation is a common thread through all parts of the business -- trading, middle office and back office. So it is not a single, stand-alone entity where there is spend on compliance technology. It becomes an issue for the management of the firm overall.
Mayiz Habbal, Celent: This is the question that is worth a lot of money. We expect that regulation that is imposed will likely be imposed on the sell side, not on the buy side. That is a safe bet to make because if people are investing their money, you can't really turn around and tell them to do it in a certain way. It is their decision to make. The only area you can regulate is the actual market and how products are designed, marketed and sold.
Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio
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