News & Resources

New regulations affect credit risk management

Nov 01, 2012 Walt Wojciechowski

New regulations affect credit risk management
Since the financial crisis, enterprise credit risk management has never been more important to ensure the sound decision-making and continued success of businesses. While traditional methods of carrying out credit risk assessments can be helpful, the constantly turbulent consumer credit landscape makes the process much more difficult in the modern era.
 Additionally, the move toward a global economy has put more businesses into international relations than ever before, which can further complicate the credit risk management process. Businesses should ensure they are following best practices and compliance requirements when conducting assessments and making certain financial decisions. Regulator changes requirements
Reuters recently reported that the Securities and Exchange Commission has put new regulations into place regarding credit risk management, while these proceedings were required under the 2010 Dodd-Frank Wall Street reform law. According to the news provider, the new rules are mostly related to the derivatives market, which was among the biggest suspects regarding the cause of the financial crisis. Reuters explained that the SEC and other regulatory entities have expanded the rules that oversee credit risk managers in enterprises and clearinghouse firms, which are used during debenture exchanges. In fact, the source noted that Dodd-Frank made it illegal for any company to exchange debts without the use of a clearinghouse, or middleman, to ensure security should default occur. "These new rules are designed to ensure that clearing agencies will be able to fulfill their responsibilities in the multitrillion-dollar derivatives market as well as more traditional securities markets," said Mary Schapiro, chairman of the SEC, according to Reuters. "They're part of a broader effort to put in place an entirely new regulatory regime intended to mitigate systemic risks that emerged during the financial crisis." Mitigating the risk for stronger continuity
Business continuity is highly contingent upon the sound decision-making of financial officers, making credit risk management a centerpiece of long-term success. While many businesses have professionals in-house who specialize in credit risk management, those firms without expertise are putting themselves at substantial risk. Credit risk management can be made easy through the use of a solutions provider, as this decision would put the threat-filled process in the hands of a seasoned professional. As the SEC and other organizations continue to increase regulatory compliance regarding credit risk, businesses can better handle these changes through the use of service providers.