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CrossCurrents: the magazine for financial services executives

Adapting to the “new normal”
How are financial services participants responding to tighter regulations, reduced spending and a slow-growing economy? From creating new frameworks to devising new strategies, mutual fund companies, banks, real estate investors and insurers are re-evaluating their game plans. See which issues are topping their agenda.

Inside CrossCurrents

  • Loan servicers catch up to greater regulation
To successfully navigate the market, loan servicers must go beyond addressing their operational needs. Servicers are not only faced with increasing loss mitigation volume, but also with new and complex compliance issues. In addition to concerns over unsustainable loan modifications, regulators are worried about the impact of current market conditions on fair lending practices. Consequently, regulations that were previously considered applicable to underwriting of credit have migrated to loan servicing. In order to address these changes, loan servicers must enhance policies, update systems and install additional compliance programs.

Download the article: Catching up to greater regulation: the sprint for loan servicers

  • Product risk: the view from broker-dealers
The Madoff scandal highlighted an area of risk management that had not been rigorously performed in the past: third-party due diligence. Now retail broker-dealers are deploying a renewed and intense focus on multiple dimensions of product risk management. These include issuer solvency, liquidity risk, third-party due diligence and investor education. Effective product governance extends from initial product approval through ongoing product monitoring. Even firms with well-established risk management processes and compliance policies need to evaluate the adequacy of their model for product development, investment advice, and managing the suitability of investments for clients based on the ever-changing economic and regulatory landscape.   

Download the article: A new lens on product risk: the view from broker-dealers

  • Back to basics: life insurers’ derivatives operations

Insurers are struggling to process increased volumes of derivative transactions and add new derivative products. Capability gaps across the derivative lifecycle will have ramifications for compliance, financial reporting, market and counter-party risk exposures.  For example, an organization’s ability to assess market risk and counterparty risk at an enterprise level may be compromised in the absence of a tool that measures those risks in a seamless manner. Insurance companies need a well-defined, top-down strategy that enables aligned technology to drive standardized processes, supported by changes to people in terms of organizational structure and skill-sets. At the same time, they should prioritize tactical plans to mitigate existing high risks.

Download the article: Back to basics: derivatives operations in life insurance companies

  • Extraordinary times for mutual funds
Extreme market conditions have diminished the effectiveness of investment and risk models for mutual fund managers. While pressures continue, consolidation is likely as it becomes more difficult to profitably operate small to mid-size money market funds. Across the industry, corporate-level asset managers who have relied on the credit markets for funding are rethinking their approach. Falling earnings have brought some firms uncomfortably close to breaching covenants and given credit market woes, equity-based funding appears more desirable. While senior management is intent on cost-cutting, asset management firms must take care that such measures do not compromise corporate governance and risk controls.

Download the article: Extraordinary times for mutual funds

  • Moving capital tax-efficiently: ideas for insurers
Numerous global insurers find that tax costs can inhibit the movement of capital. Specifically, the expense of redeploying after-tax profits inhibits capital flow. These taxes can take many forms such as residual income tax, withholding tax and branch profits tax. Adding to the confusion for multinationals is the array of tax regimes which they must operate. Nonetheless, companies can manage these tax obstacles through effective capital planning and deploying structural, technical and/or transactional strategies. The sooner tax planning becomes a part of the capital efficiency process, the more likely a company can be successful in its global capital deployment.

Download the article: Planning for the tax-efficient movement of capital

  • The risk outlook for insurance
Insurers must prepare for globally interconnected regulations and sweeping changes. Even if systemic risk abates, the consequences of the financial crisis are like to shape the financial services industry for the next decade. Insurers will also be challenged by demographic shifts in core markets and unexpected changes in both the forms and sources of liability. How can insurers address today’s challenges? Companies must protect their assets and capital base, mitigate exposures to losses, tighten processes and controls, instill customer confidence and maintain their agency ratings.

Download the article: Hazards on the horizon: the risk outlook for insurance

  • Managing REO costs: revisiting business processes
Time lost is money lost in the Real Estate Owned (REO) market. The longer a distressed property sits on a bank’s books, the more money they must throw to the waste side to manage and dispose of it. To date, the most prevalent and lowest-cost approach has been on better pipeline management: decreasing the amount of time it takes to market REO properties. But as the volume of foreclosures accelerates, mortgage holders cannot move property fast enough – no matter what pipeline changes they embrace. In this environment, mortgage loan servicers need to combine old-fashioned execution with innovative strategies for managing the costs of maintaining and selling REO properties.

Download the article: Managing the true costs of REO: revisiting business processes

  • The state of private equity
Will private equity emerge from the downturn weaker or stronger? There have been reports of a possible industry shakeout, and the recession may yet drive structural changes to the existing PE model. As holding periods lengthen, PE firms focus on enhancing their own back-office operations and strengthening the performance of portfolio companies. Find out how PE firms must adapt to a world where leverage funding is less available and increased regulation looms on the horizon.

Download the article: The state of private equity

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Insurance Robin B. Sojcher
Banking & Capital MarketsWilliam Schlich 
Asset ManagementMichael D. Lee
Circulation QuestionsTom Lukowicz
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