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Risk Management

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10 Priorities of Financial Regulatory Reform

Issues Congress's Financial Regulatory Reform should address include trade flow, consumer visibility and orderly liquidity and reporting, according to Capco.

Capco, a provider of consulting and managed services for the financial industry, identified 10 critical issues that it says Congress's Financial Regulatory Reform should address, including trade flow, consumer visibility and orderly liquidity and reporting.Trade Flow 1. To manage trading anomalies and reduce the probability of a future "flash crash," Congress and the Exchanges should think less about trading "circuit breakers" and more about enabling the means to throttle trade flow on individual equities up or down, Capco said.

Compliance 2. Congress should encourage the financial industry to form a compliance clearing house. Similar to a check clearing house model, financial institutions should be incentivised to consolidate regulatory and compliance-related talent and technologies in order to accelerate adoption of new and existing regulations while enabling a consistent view of each institution.

Consumer Visibility 3. Clear visibility into the features and functions of consumer products. While it is important to mandate disclosure, consumers‟ understanding of products and markets is critical.

4. Institutions should be able to set prices as they see fit, but not change lending terms mid-stream (e.g., increase interest rates substantially after a single missed payment).

Risk Control & Transparency 5. Adequate controls and understanding of risk around private equity investments and proprietary trading are necessary. Elimination of such investments has the potential to stifle innovation, create legal jeopardy for past behavior, and further erode consumer confidence in markets and regulators.

6. Increasing transparency through incremental measures that can determine the point of diminishing marginal return. Buyers and sellers need to make informed decisions on standard and non-standard products, which can only be achieved if adequate information is provided in a portable and persistent manner.

Orderly Liquidity & Reporting 7. Untenable positions need to be unwound or liquidated in an orderly manner to preserve the currently fragile confidence in markets -- incremental options will help the financial services industry avoid a "tipping point."

8. Temptation to add more regulations and more laws should be resisted to avoid greater confusion, rather than clarify. Better and more complete reporting can be adequately mandated by current regulators and current laws.

Executive Compensation 9. To improve confidence, executive compensation can be structured against longer time horizons and future performance.

Global Regulatory Consistency 10. Strong cross-border coordination of regulatory reform is important. As the crisis demonstrated, it is important for institutions to have "living wills" so that in the event of future crises there can be an orderly response to mitigate systemic risk.

According to Capco, markets, investors and regulators need to develop a better appreciation of linkage and dependency across global markets to avoid systemic risk. Silos by product, market, region, or country fail to account for domino effects and leave little room for managing complexity.Issues Congress's Financial Regulatory Reform should address include trade flow, consumer visibility and orderly liquidity and reporting, according to Capco. Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

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