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First 100 Days of Obama Administration Pave Road for More Regulation

April 27, 2009

MINNEAPOLIS — The first 100 days of President Barack Obama’s administration have been marked by much pressure to address the financial crisis, help the U.S. economy, and establish regulatory reform. Wolters Kluwer Financial Services’ compliance experts agree that development alone has already changed the mood within the financial services industry.

“Regulators are feeling much more empowered than they were during the previous administration,” said Edward Kramer, executive vice president for Regulatory Programs at Wolters Kluwer.

“More stringent regulatory exams, a rising number of enforcement actions and the growing number of financial institution closings during the first quarter of this year are evidence of that.”

Kramer said he believes the mortgage reform bill Congress debated last week could be the beginning of major financial services regulatory reform. The bill would fundamentally change the mortgage lending market, placing tighter restrictions on nonprime mortgage lending and lender compensation. Perhaps more importantly, it would require lenders establish what the bill calls a “duty of care” in proving borrowers could repay a loan or that refinancing gave them a net tangible benefit.

“The proposed mortgage reform bill combined with numerous regulatory changes already scheduled to take effect this year could likely put financial institutions in a significant crunch,” said Amy Downey, senior regulatory consultant at Wolters Kluwer.

These changes are very different from those of previous years that required a simple update to a document or disclosure. Instead, they will require institutions to change the way they do business. Many institutions are just starting to figure this out and scrambling to adapt.”

The securities industry has also seen a number of issues discussed during the first 100 days of the new presidential administration, including the potential regulation and registration of hedge funds, changes to credit rating agencies, and harmonizing rules between investment advisors and broker-dealers. Legislation concerning some of these issues has been introduced, and more will likely come.

“I think it’s clear that we are going to see more regulation in the coming months, as well as the regulators working to flex their muscles and extend their influence,” said David Thetford, securities compliance principal analyst at Wolters Kluwer.

“The Securities and Exchange Commission (SEC) has already highlighted a number of areas where it would like to see reform, and has indicated it would like to increase the size of its staff. I’m anticipating we’ll also see similar activity from other regulators, including the Financial Industry Regulatory Authority (FINRA).”

Thetford notes that this has created a level of suspense within the financial services industry, as it prepares for the growing pains associated with regulatory change, which will likely include adjusting and modifying compliance procedures and educating staff.

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