Reported everywhere but summarized on the White House blog, Obama laid out seven core principles for the new financial services regulation he and Congress will be pushing over the next months. Of particular interest to risk managers are his principles on openness and transparency as well as well as his call for the new regulatory system to be comprehensive and free of gaps.
We’ve been advocating for (and provide software for!) greater transparency for risk in the business. What’s important to note here is that to do so in any realistic, pragmatic way will require industry standards for risk reporting. Interestingly, that is the topic of today’s IBM Data Governance Council meeting on risk profile reporting. Industry experts on XBRL and risk reporting will be gathering in New York to discuss how industry can leverage existing models for risk information sharing (e.g. ORX) and the rising XBRL standard. Clearly, the government is going to provide a regulatory incentive for better risk reporting; it will be up to us to shape how that works in the real world.
Also, with regard to the regulatory framework principle, we are starting to see that regulatory agency consolidation may be an option after all. With the SEC weakened and derivative oversight totally lacking, it’s not impossible to consider the CFTC and their skills in derivative oversight as being a much larger solution to the regulatory problem. There’s also the interesting point that Obama’s from Chicago, where CFTC’s located and has great sway over the business and regulatory thinking. Having lived in Chicago for four years working for a CBOT-registered firm, I would not underestimate the influence of this perspective. Especially given the recent failures for the SEC.
Of further note, we can imagine that optional federal charter for insurance companies is dead on arrival. Clearly, Obama was saying no to regulatory arbitrage, something insurance commissioners throughout the US are concerned about.