Regulatory Compliance Presents Biggest Challenge For In-House Counsel in 2012

by Mike Mintz on January 5, 2012 · 4 comments

in Corporate Counsel,Corporate counsel issues,

recent survey found that general counsel consider compliance with new and ever more complex regulations as their biggest challenge in 2012.

The Dodd-Frank Act (“Dodd-Frank”), imposes wide-ranging changes, covering everything from capital investments by banks and insurance companies to reporting requirements on executive compensation.  However, compliance with Dodd-Frank is not the only regulatory hurdle facing general counsel in the New Year.

In late 2011, the US Federal Reserve declared that it will implement nearly all of the Basel III Rules.  Created to prevent financial and banking meltdowns like the ones threatening several European countries, Basel III requires banks to implement additional capital buffers and protections.  The Federal Reserve has declared that Basel III does not, however, only apply to banks. It also applies to non-bank financial firms that may be designated as systemically important companies.

The Federal Reserve summarized it’s proposed implementation in a press release as follows:

  • Risk-based capital and leverage requirements. These requirements would be implemented in two phases. In the first phase, the institutions would be subject to the Board’s capital plan rule, which was issued in November 2011. That rule requires firms to develop annual capital plans, conduct stress tests, and maintain adequate capital, including a tier one common risk-based capital ratio greater than 5 percent, under both expected and stressed conditions. In the second phase, the Board would issue a proposal to implement a risk-based capital surcharge based on the framework and methodology developed by the Basel Committee on Banking Supervision.
  • Liquidity requirements. These measures would also be implemented in multiple phases. First, institutions would be subject to qualitative liquidity risk-management standards generally based on the interagency liquidity risk-management guidance issued in March 2010. These standards would require companies to conduct internal liquidity stress tests and set internal quantitative limits to manage liquidity risk. In the second phase, the Board would issue one or more proposals to implement quantitative liquidity requirements based on the Basel III liquidity rules.
  • Stress tests. Stress tests of the companies would be conducted annually by the Board using three economic and financial market scenarios. A summary of the results, including company-specific information, would be made public. In addition, the proposal requires companies to conduct one or more company-run stress tests each year and to make a summary of their results public.
  • Single-counterparty credit limits. These requirements would limit credit exposure of a covered financial firm to a single counterparty as a percentage of the firm’s regulatory capital. Credit exposure between the largest financial companies would be subject to a tighter limit.
  • Early remediation requirements. These measures would be put in place for all firms subject to the proposal so that financial weaknesses are addressed at an early stage. The Board is proposing a number of triggers for remediation–such as capital levels, stress test results, and risk-management weaknesses–in some cases calibrated to be forward-looking. Required actions would vary based on the severity of the situation, but could include restrictions on growth, capital distributions, and executive compensation, as well as capital raising or asset sales.

General counsel in a wide range of industries will be affected by the implementation of these rules.  In-house counsel in the financial and banking sectors will need to be part of the roll out planning of senior leadership plans to comply with the new rules.

This video talks about how Basel III will reshape the playing field for business globally.

How do you think general counsel should best prepare for Basel III?



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February 7, 2012 at 2:07 pm

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david potts wrote onJanuary 9, 2012 at 7:56 pm

thanks Mike,I will try those suggestions
if you think there would be any interest from corporate counsel,I could send you some short posts about cyberlibel attacks on corporations. My approach is rather different as I believe cyberlibel is a form of guerilla warfare and needs to be approached differently from offline defamation. Its such a new, fluid and complex field that I would like be able to exchange ideas rather than just talk myself
ideas rather than just talk about what I think


david potts wrote onJanuary 5, 2012 at 4:36 pm

I really enjoy your blog
sorry to bother you but you direct me to any corporate counsel blogs that discuss cyberlibel attacks on corporations. I am a defamation lawyer and have just had a book published about cyberlibel. i would like to find a blog where I could exchange ideas about how to repond to cyberlibel attacks


Mike Mintz Mike Mintz wrote onJanuary 9, 2012 at 10:22 am

Hi David: thanks for the kind words. No blogs come to mind off the top of my head, because many of the blogs or blog posts out there are really written by law firms specializing in cyber libel. My favorite sites for corporate counsel issues generally are the LexisNexis Communities (thousands of blogs on a host of topics), Inside Counsel, and the Association of Corporate Counsel portal (requires membership to view all content).

Do any readers have other suggestions for David?


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