Shield - Politics and RegTech Make Strange Bedfellows

SHIELD

POLITICS AND REGTECH MAKE STRANGE BEDFELLOWS

The United States does have a bit of a reputation for being Americentric which is greeted by the rest of the world with either total nonchalance or a bit of chiding. However, what is undeniable is the ripple effect of their politics and regtech on the financial markets around the globe. If a Republican is seated in the Oval Office, regtech can relax for four years. But, if a Democrat is residing in that storied house, it’s a different story. With President Biden now in office, get ready – the pace of regtech is probably going to become fast and furious.

A Historical Perspective Wall Street has different relationships with Republicans versus Democrats which tend to be more relaxed with the former. One would think that those relationships are related to stock market performance and that, perhaps, one party has a better track record when it comes to investment returns. Not so: a recent analysis conducted by Forbes shows that it doesn’t always matter. As it turns out, good investors make healthy returns on their money regardless of who’s in the White House.

But if you’re not a good investor and if you’re a compliance officer or trader, it’s a different story. If history tells us anything, there will likely be increased regulation under President Biden.

Build, Tear Down and Rebuild That’s essentially the cycle that’s on rinse – repeat each time the Oval Office switches its political party affiliations. We’re all aware that the U.S. President appoints people to critical positions such as the head of the Department of Commerce, Chair of the Federal Reserve, and so on. Naturally, whoever is chosen to fill those roles is going to leave their imprint on the associated laws and policies of the office they govern.

What about eComms?

Last year, when COVID crashed the office party, traders retreated to their living rooms. Of course, this instantly altered the role and the reach of the compliance officers, plus it put financial firms on notice. Almost overnight, financial firms were faced with a new kind of crisis – ensuring compliance through sustained monitoring, analysis and reporting efforts – but doing so outside of their controlled office environments. The pressure to continue trading and recovering investment losses never dissipated. Nor did the obligation to meet compliance standards.

Changes Ahead Manual processes have begun to fall out of favor. With regulations changing as quickly as they do and with increased scrutiny of trades between financial markets, we expect to see greater automation. This allows for increased efficiency and improved maintenance, as well as reduced costs, versus manual processes which have to be fully reworked each time a regulation changes.

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