Navigating Regulatory Risk
The role of the regulatory liaison office
Over the last five years, as new laws, regulations and other guidance were introduced, banking and securities firms recognized the need for more visible and strategic management of their complex regulatory relationships. As more and more questions continued to flow from regulatory agencies, it became clear that the current methods of regulatory response may not have been as efficient and proactive as possible.
In response, some firms created a Regulatory Liaison (RL) position (sometimes referred to as Regulatory Affairs Officer, Head of Regulatory Relations, etc.), which combined a sound understanding of the organization’s business with an appreciation for the regulatory agencies’ supervisory processes. Executives often came to these roles as experienced regulators, or risk and control managers. Other firms took a different route, making the liaison role a responsibility of the Chief Operating Officer (COO) or Chief Administrative Officer (CAO), reporting into the Chief Executive Officer (CEO). Still others took a step further and created a Regulatory Liaison Office (RLO) outfitted with staff.
An RLO with the proper executive leadership can be an effective way for an organization to manage regulatory concerns and speak with a single voice to the regulators, who oversee an organization’s operations.
Today, the regulatory environment that spawned many liaison initiatives is even more complex, with stronger engagement from banking and securities regulators. Continuing shifts in the regulatory landscape, such as Basel II & III, the Dodd-Frank Act and the creation of the Consumer Financial Protection Bureau, affect virtually every financial institution in some way. This has led to an emerging recognition among firms that regulatory risk is a relevant part of the organization’s risk framework.
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