End of year report card: Financial regulation

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Performance: A+
A very busy year – especially after the UK’s Brexit result on June 24. The class’s efforts to provide an ongoing and detailed analysis of the issues was welcomed as a calming influence with Clifford Chance and Allen & Overy picking up top marks for explaining how things might work.

The year was already shaping up to be one to remember with a change at the top of the Financial Conduct Authority in the shape of Andrew Bailey. Diaries were also full coping with the changes to come with Europe’s Mifid. There’s also the ongoing work in changing culture and sharpening up compliance. Wave after wave of rigorous training programmes have been rolled out across firms to ensure front-office staff know what behaviour is expected of them, while efforts to improve monitoring and surveillance systems gathered pace.

Among the banks, a focus on using artificial intelligence and machine learning to spot misconduct in seconds is beginning to work with Credit Suisse starring in this area. The overall performance was good but, if they want to be top of the class, regulatory specialists must continue to put the hours in.

Behaviour: Grade B
Much improved, but still room for improvement. Compliance with new market abuse regulation continues to prove a challenge for some, with certain banks struggling to get to grips with rules about the process of sharing information that makes someone legally an insider. Some revision wouldn’t go amiss over the Christmas break.

Compliance teams in the fund management sector need to get to grips with the implications of accountability rules, which could significantly change the structure of buyside firms. The group would benefit from a session with their investment banking counterparts who went through a similar process when it became subject to the UK’s senior managers’ regime in March.

Fines levied by the headmaster on banks in the first 10 months were a tiny fraction of those levied in 2015. However, the expectations placed on compliance teams’ ability to avoid regulatory breaches altogether have risen. The group must now aim to prevent any instance of reputational and financial damage from occurring and they must do so while the headmaster’s new enforcement head is itching to make an example of wrong-doers, while sticking to a tight budget.

Areas to work on:
Compliance professionals must work harder to involve themselves in front-office discussions if they are to influence change. With regulatory specialists by now well-schooled in getting quickly to grips with regulation, the group can forget to step back and assess the “big picture” trends in regulation, how these will impact the business lines they’re advising and how the new rules fit together. Lawyers could also learn to step away from their traditional role as legal adviser and do some work closer to consultancy.

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