This weekend the president-elect Barak Obama was interviewed by Tom Brokow on Meet the Press. The interview covered a wide variety of topics, but one caught my eye as it impacts the risk management business moving forward.
On the subject of regulation in the financial services industry, Obama was very clear:
“And so, as part of our economic recovery package, what you will see coming out of my administration right at the center is a strong set of new financial regulations in which banks, ratings agencies, mortgage brokers, a whole bunch of folks start having to be much more accountable and behave much more responsibly because we can’t put ourselves–we, we can’t create the kind of systemic risks that we’re creating right now, particularly because everything is so interdependent. We’ve got to have transparency, openness, fair dealing in our financial markets. And that’s an area where I think, over the last eight years, we’ve fallen short.”
So, what does this mean for the risk management business? Well, there are two key points about what Obama said. First, he mentions accountability. The question is accountable for what. My guess is that the accountability he’s talking about is that, for instance, rating agencies have to be accountable for the ratings they issue, banks will have to be accountable for describing accurately, and completely, the securities they are selling, etc. Second, he mentions transparency and openness. Clearly, banks are going to have to provide more transparency around reporting on risk in their business. And with with more stringent reporting requirements will come greater emphasis on internal reporting on internal controls and risk exposure. Steve Adler of IBM blogged about this 10 months ago. It won’t be another 10 months for stricter regulation to materialize; the question is how will the industry respond?