All firms are exposed to risk in a variety of ways and if a business is operating internationally, then these risks become increasingly difficult to manage.
Among the broad portfolio of risks that a business is exposed to, managing Regulatory Risk is particularly challenging. It is difficult to manage and quantify this risk.
What is regulatory risk? Investopedia defines Regulatory Risk as the risk to a firm that a change in laws and regulations will materially impact a security, business, sector or market.
This means that changing or introducing a law or regulation by a government or regulatory body an increase in the costs of operating a business, reduced attractiveness of investment and even a change in the competitive landscape could come about.
With such a broad scope and the potential negative effect it could have, Regulatory Risk cannot be poorly managed or it may result in significant financial loss to a firm due to factors such as unanticipated changing laws, regulations and even codes of conduct.
Banks in the Financial Services Industry are known to be closely regulated and particularly so since the recent Financial Market Crisis. These firms are significantly exposed to Regulatory Risk. The regulatory landscape is continually changing.
For example, the Basel Committee on Banking Supervision has proposed some major revisions and additions to the existing Basel II capital adequacy regime. In December 2009, two consultation papers entitled “Strengthening the resilience of the banking sector” and “International framework for liquidity risk measurement, standards and monitoring” were published.
These proposals, have become collectively called Basel III, forming part of the global regulatory response to the financial crisis.
Reforms to how banks will become regulated are intended to promote a more resilient banking sector and to improve the sector’s ability to absorb shocks arising from financial stress. It is difficult to accurately quantify how reforms such as these will change financial services in the long-run. This is the role that managing regulatory risk will fill.
At Regulatory-Risk.com you will discover what some of these regulatory risks are, their impact, on business and how they can be managed.