2022 – A Landmark Year for Regulatory Change in Banking and Financial Services

Regulatory change Management (RCM) has never been easy for financial institutions, and its complexity is increasing in 2022. This year is poised to be the year of significant regulatory change at the federal and state level. As reported by Reuters, 2022 will be a ‘’turning point’’ for the current administration’s financial approach. Financial regulators are releasing white papers, FAQs, and calls for feedback to prepare the system for the regulatory changes that are about to come.

Why 2022 Will Be the Year of Regulatory Change

There is usually no major upheaval in regulatory frameworks when government leadership changes – there are minor changes, but a significant overhaul is generally not expected.

The disruptions caused by the pandemic were (and still are) so disruptive that the federal and state governments spent most of their time and resources trying to manage the economy as the global supply chain came to a crawl. Instead of implementing big changes, they had to introduce further leniencies in the regulatory framework (such as increasing reporting times and reducing audits) because the government understood how precarious the pandemic was for businesses.

While the Biden administration may not have implemented any significant changes so far, it has not been sitting idle either. The past year was spent creating new regulatory roles, appointing new regulatory and climate experts, and discussing the upcoming regulatory changes. This means that as 2022 starts, the administration is ready to introduce the changes it has always planned. The White House announced the people it would be nominating to lead financial regulatory agencies in September 2021. 2022 will be the start of most of these changes, the ramifications of some of which will be felt for many decades.

Climate Change and Cryptocurrencies

Two major forces are driving many future regulatory change efforts are climate change and cryptocurrencies. The Financial Stability Oversight Council (FSOC) highlighted in its annual report that, while the US economy has improved since the outbreak of the COVID-19 pandemic, financial system risks are more significant than they were before to the health crisis, with the prognosis for global growth remaining uncertain.

The report was the first time the body, which was established in the aftermath of the 2007-2009 financial crisis to identify emerging risks and threats to the financial stability of the nation, identified climate change as a severe issue, echoing the administration’s commitment to combat global warming.

The FSOC, which comprises the Treasury and other financial regulators, stated that physical hazards posed by increasingly frequent extreme weather events and government policies shifting away from carbon-intensive industries might impact asset values and weaken institutions, repeating an October FSOC document.

“If these changes occur in an unplanned manner as a result of significant delays in action or rapid policy changes, their impact is likely to be more abrupt and disruptive,” the FSOC stated.

Similarly, the body restated its November fears that stable coins, a rapidly developing sort of digital asset tethered to existing currencies, may pose a hazard if broadly embraced. While that market is only valued at approximately $127 Billion at the moment, it has grown more than 500 percent in the last year and may be subject to runs if investors lose faith in the asset class’s stability, the FSOC said. Additionally, the committee noticed an increase in volatility earlier this year spurred by retail investors who banded together on social media and utilized zero-commission trading applications to significant power increases in a few equities, including videogame retailer GameStop.

The episode demonstrated that financial technologies and social media are altering market participation, increasing the possibility of unrelated asset price swings. This “may represent a vulnerability if it results in cascading effects such as asset liquidations or financial institution stress,” the FSOC wrote.

Creating Flexible RCM Frameworks

2022 is when the new regulatory priorities will begin taking shape. Any financial institution that wants to change how it manages regulatory changes should investigate flexible and modular regulatory change management platforms. Instead of locking the organization into an RCM technology that is no longer viable once the regulatory framework changes, businesses can consider cloud-based RCM solutions that are constantly updated according to the latest regulations.

That is also what makes Predict360 – the American Bankers Association (ABA) endorsed Risk and Compliance Management Solution – a great fit for banks, credit unions, and financial services organizations. Its AI-powered, modular nature ensures that Predict360 users are always equipped to manage regulatory changes as come in.