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The pendulum shift from financial risk to regulation

Sep 22, 2011 Mike Garretson

In many ways regulation is a byproduct of poor risk management practices. It's what happened in the aftermath of the 2008 financial collapse, as governments in both the U.S. and Europe sought to limit the impact of unchecked risk. While financial services firms are leveraging and modifying their technologies to stave off or manage risk, more regulation is inevitable. New computer systems are being developed to help identify excesses or inconsistencies in sectors such as mortgage lending, securities trading and structured credit - all in an effort to preempt regulatory intervention. "People tended to manage compliance through a rear-view mirror, but the best institutions recognize that compliance is an operational risk," Douglas McKibben an analyst at research firm Gartner, told the Financial Times. "It has an impact on your performance and your reputation." Recent compliance demands include the Dodd-Frank Wall Street Reform Act, the Credit CARD Act and the new "Basel III" international banking standards. While most in the finance sector have been critical of these measures, it remains to be seen how effective they will be in mitigating some of the unchecked risk that contributed to the collapse of the market.