Regulatory scrutiny refers not just to the extent of and exigency of regulation but to the expectations of regulators and the likelihood of supervisory and enforcement action. Reflecting the global nature of markets and the inter-connectedness of the world’s economies, international standard-setting bodies are becoming ever more important in raising standards and in sharing best practice.

In the seventh installment in the Finding Balance series, we take a closer look at increasing regulatory scrutiny of financial institutions (FIs), in light of the COVID-19 pandemic. Here are some takeaways from the report:

  • The expanded regulatory architecture put in place after the 2008 financial crisis is generally seen to have been a success in the face of stressed markets and the financial strain on the economy caused by COVID-19. This approval is likely to see regulators continue with their current regulatory approach.
  • The effects of the pandemic have bolstered the trend for regulators to proactively intervene in consumer markets requiring FIs to act in their customers’ best interests – challenging strict terms and conditions that may be perceived as unfairly disadvantageous to customers.
  • The digitalization and environment, social, and governance (ESG) megatrends are already shaping the future regulatory environment in which FIs operate.
  • As we start to exit the pandemic, there are already signs that its aftermath will lead to increased enforcement and litigation (e.g. for fraudulent behaviors), but to what extent is still unclear. The scale, however, is likely to be far lower than after 2008.

Innovative use of technology and data is facilitating improved scrutiny of markets by regulators, so-called Reg-Tech. In this way, regulatory scrutiny of FIs is greatly enhanced, and regulators are able to leverage technology to identify potential contraventions and bring enforcement action much more quickly and with fewer resources required.

You can read our full report – Finding Balance: Increasing Regulatory Scrutiny of Financial Institutions – to see how the current pandemic impacted regulatory activity around the space and how megatrends are shaping the future of this phenomenon around FIs.

You can also read our previous installments: BanksFinancial SponsorsInsurance, Financial Infrastructure, and Sustainability in Financial Institutions or visit the page to access additional resources – including videos and podcasts.

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