The post-crisis response from global regulators to make financial markets a safer place for investors has involved some tough moves for those companies in business sectors that have been obliged to comply.
It has been mainly financial services firms that have had to adapt to new regulatory landscapes, and the costs of compliance have been eye-watering.
Financial firms and others who oppose tighter controls have argued new regulations place costly and burdensome demands on companies that come at the expense of economic growth.
The counter argument is that such burdens are in place to avoid a repeat of the 2008 crisis – the costs of which make complying with regulatory demands seem like chicken feed.
But the good news is, that most companies in the financial services industries have now arrived at their methods of dealing with regulatory compliance and are quickly absorbing the costs.
And, as we'll see later, many of the regulations put in place since the crisis and those about to be put into force, have spawned a brand-new business sector that is developing fast, and likely to offer investment opportunities of its own in the years to come.
Avoiding systemic failure – Basel and Dodd-Frank
The first new rules that came into place following the crisis were aimed at ensuring the continued operability of those institutions deemed "too big to fail" should a similar threat emerge.
Through amendments to its previous Accords, the Basel Committee on Banking Supervision launched Basel III – aimed at strengthening capital requirements by increasing bank liquidity and reducing leverage.
While the Basel III regulations were a global, voluntary regulatory framework, domestic and regional regulators were also addressing the systemic failure issue.
In the US, legislation was passed in 2010 by the Obama administration named Dodd-Frank after its congressional sponsors Christopher Dodd and Barney Frank.
Regulations demanded liquidity provision, authorised the break-up of banks deemed so large and cumbersome that they posed a threat, aimed to stop predatory lending behaviour.
The most controversial of the components in Dodd-Frank legislation was the Volcker Rule that restricted bank investments, limiting purely speculative behaviour and curbing proprietary trading.
Critics were adamant that such regulatory scrutiny was destroying the balance of risk necessary for banks to flourish and increase profit growth. The animal spirit that elevated the financial sectors would all but disappear, they believed.
Among the most fervent of these critics has been the current US president Donald Trump, whose efforts to overturn Dodd-Frank and replace it with the Financial CHOICE Act, is currently being reviewed by the Senate.
And while the initial losses for banks in the aftermath of the crisis and during the regulatory response were heavy, the animal spirits have certainly returned during the past five years.
Of the 10 broad sectors on the S&P 500 index, ‘Financials’ has only been topped by one other sector – ‘Healthcare’ – and that by only 1.28 percentage points.
Over the past five years Financials has returned 100.71% while Healthcare has returned 101.99%.
Forthcoming regulatory changes
The Second Payment Services Directive. PSD2 explained
PSD2 was implemented in 2016 and will be enforced across Europe from 13 January 2018.
What is it?
This replaces the original PSD by bringing in elements covering new payment services and providers and puts further emphasis on customer protection from fraud and possible abuses. It also promotes further competition in an already competitive industry to help lower prices for payments and hopes to contribute to a more integrated and efficient European payments market.
With the deadline so close, the work has been done. While banks and other payments institutions may have had extra compliance costs, they've known about such costs for a long time and have planned their strategies carefully.
Most institutions, rather than take on the risks and expense of building their own payments systems, have contracted out the development of such services to third-party IT service providers such as SWIFT, Stet and ACI.
This means that even operationally, the banks and other institutions really have few operational costs to consider, other than the fees charged by the payments service providers (PSP).
Breking down the General Data Protection Regulation (GDPR)
GDPR was adopted by the European Union in 2016 and, after a two-year transition period, becomes enforceable on 25 May 2018.
What is it?
This new EU data protection regulation is aimed at all companies that process the data of EU residents and these regulations are to protect the personal information of individuals, customers and clients. Addresses, telephone numbers and other personal data and, of course, bank details and medical records, as well as information on social media all come under the wing of the GDPR data protection.