August 2012: Armageddon? What Armageddon?

As we entered the fourth quarter of last year, many across our industry anticipated 2012 to be the year of regulatory Armageddon. The consensus was that the next 12 months would usher in a veritable flood of new, far-reaching and potentially disruptive regulations that would have even the most on-the-ball compliance officers in a tail spin. This was borne out during the CIOs’ panel discussion at the 2011 Waters USA event, where panelists estimated that as much as 40 to 50 percent of their total IT budgets would be consumed by regulatory projects.

But everyone was wrong. Sure, we have witnessed the introduction of Form PF in the US, the forthcoming European Securities and Markets Authority’s central counterparty clearing rules, and the Legal Entity Identification for Financial Contracts standard, although the latter two regulations fit more neatly into the “industry development” pigeon hole than that labeled “costly, disruptive and generally painful regulation.”

So it’s fair to say that from a regulatory perspective, 2012 has so far amounted to nothing resembling regulatory Armageddon. The principal reason for this year’s regulatory damp squib is the US presidential election. It has always been the case that the incumbent US president—supported by his political party, and, in many instances by large sections of the upper and lower houses—looks to defer any potentially unpopular legislation, so as not to shoot himself in the foot and by so doing scupper his re-election chances. A cynic might argue—with tongue firmly planted in cheek—that the Twenty-second Amendment was created expressly to ensure that presidents could serve a maximum of two terms only, thus ensuring that at least some bills have a half-decent chance of seeing the light of day, albeit only in non-presidential election years.

But all this year’s Capitol Hill navel gazing doesn’t mean that Dodd–Frank is going anywhere soon—it’s just that for the time being, more important things have taken precedence. But next year and 2014 will be different, that’s for sure. It’s unlikely we’ll ever witness a regulatory “Big Bang” where the industry’s regulators work in league and unleash Armageddon—they’re too savvy for that, and, given the amount of regulatory push-back the industry has shown over the past decade, regulators have learned to manage their battle plans one fight at a time.

Instead, new rules will be drip-fed into the industry, stealthily closing loopholes and ratcheting tight the regulatory framework, in a manner analogous to the boiling frog anecdote: the water temperature will slowly rise, the frog will not be alarmed, but the result will be the same—boiled frog.