The financial crisis has had a wide-ranging effect on many facets of life. For financial services ­businesses, one of the most ­significant and ­lasting impacts will be on the way they are regulated.

Since the collapse of Lehman Brothers had such a profound ­ripple effect on markets, policymakers have turned the spotlight on areas including auditors, asset ­managers and insurers in an effort to protect consumers and prevent a repeat of the crisis. ­Perhaps the most active regulator has been the EU. Key pieces of regulation proposed since the crisis include a crackdown on over-the-counter (OTC) derivatives and central ­counterparties (CCPs); new regulations for auditors; the Solvency II regulations for insurance companies; and a directive on Alternative Investment Fund Managers (AIFM).

The UK’s FSA, a key global regulator due to the size and importance of the country’s financial sector, has also been busy implementing a governance code for auditors and a corporate governance code ­covering other businesses, including new rules on remuneration. Some of these pieces of regulation are already in place while others are still going through the long, slow EU ­legislative process.


For general counsel the wave of regulation has meant a busy year or so. At Bank of America Merrill Lynch associate general counsel Janet Wood has been leading the bank’s strategy as it wrestles with European Commission proposals to regulate OTC derivatives.

Many blamed the widespread use of these financial instruments for the crisis and the EU wants to impose stricter rules on them, although the details are still up in the air. Wood reveals to us the bank’s ­thinking on the effect of this on both itself and its clients.

Unfinished regulation is also a hot topic for our other interviewees. ­Universities Superannuation Scheme (USS) general counsel Jeremy Hill and Marshall Wace’s legal head Jon May have both been ­heavily involved with ­lobbying efforts as the controversial AIFM directive has been bashed out over the past two years.

Like the OTC derivatives proposals, the directive will mean ­significant changes. Many in the asset management industry have spent a lot of time arguing that the directive is unnecessary as it is aimed at protecting sophisticated, professional investors who are quite capable of managing their own affairs.

May and Hill, representing manager and investor, have been forced to stay on top of the ever-changing debate over the directive as it has moved slowly through the legislative process. Although the level 1 debate is now over, the details are still being bashed out and lawyers need to stay on top of the issues.

The audit industry is in the midst of a similar process, albeit a few steps behind. As KPMG general counsel Vanessa Sharp explains, her company and the rest of the UK’s big four auditors spent the end of 2010 responding to an EU consultation on future regulation.

While the auditors have gained through having a consultation – one of the many criticisms of the AIFM directive was the lack of industry participation in the first draft – Sharp has had to juggle responding to the EU proposals with implementation of the FSA’s Audit Firm Governance Code. This is meant to protect shareholder interests and affects every auditor with more than 20 clients.

Protection is also the key theme of the EU’s Solvency II directive. This kicks in at the end of 2012 and poses significant issues for insurance companies such as MetLife. There, head of legal and compliance Stephanie Fuller has found ­herself grappling with changes enforced by the directive. New capital requirements are the headline topic, but companies must also examine their risk management and governance systems, and adhere to reporting requirements.
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Regulatory changes have not only been prompted by the financial ­crisis. Improvements to existing regulation are also ongoing. One such piece is the EU’s ­Markets in Financial Instruments Directive (MiFID), introduced in 2007. MiFID is currently under review, but as ­WorldSpreads general counsel Dominic Bacon reveals, it has not always been easy to comply with.
All the EU regulation in recent months is now under the aegis of the European Securities and Markets Authority (Esma). Esma came into being in January and is in the process of selecting its ­management and ­officials. The financial services industry will be watching closely how the body deals with issues such as the AIFM directive, ­Solvency II, MiFID II and OTC derivatives.