Regulatory Blues

It was Thomas Paine who wrote the phrase, "These are the times that try men's souls." Of course, he was using these words to describe the state of affairs more than 200 years ago. But this observation could just as easily apply to the atmosphere bankers now face prepping their institutions for the new regulatory, risk and security issues stemming from the tragic events of September 11.

Indeed, the list of tasks currently confronting bankers is both arduous and terrifying. For example, before the end of April, banks must have anti-money laundering procedures in place to meet the first deadline of the USA PATRIOT ACT, a series of regulations enacted to protect America and its financial system from further terrorists attacks. Over the upcoming months, bankers will be forced to meet a series of PATRIOT ACT provisions, everything from sharing transaction information transparently with the federal government to verifying the identity of all people and firms doing business with the bank.

Failure to adhere to these laws can be damaging, both from a monetary and a public relations standpoint. Fines can go into the millions of dollars. The harm to a bank's reputation if caught violating the PATRIOT ACT is incalculable, although we may soon find out. According to Michael Verde, a partner with Rosenman & Collin and former New York City cop, the federal government will likely "put a head on a spike," i.e. indict a high level banker to serve as an example to others.

Once bankers pass this obstacle, others loom. Recent government reports claim the U.S. financial system is susceptible to both physical and cyber-terrorism. These attacks could take on many forms-a computer virus, the bombing of facilities, assaults against the power or telecommunications grid, anthrax mailed to bill sorting facilities and so on. Financial institutions must have plans in place to operate through all these potential crises.

The good news is that banks will not have to undergo these changes alone. Insurance and brokerage firms will also be asked to comply with the PATRIOT ACT. The U.S. government is also willing to work with financial institutions. According to Jimmy Gurule, Under Secretary for Enforcement U.S. Department of the Treasury, the government hopes to foster a spirit of partnership with the banking industry, so there is a willingness to address "other areas of vulnerabilities that the PATRIOT ACT may not be covering."

We at BS&T are also doing our part. All the above information came out at the Executive Technology Forum, a one-day event that BS&T, along with the Bankers' Association for Finance and Trade (BAFT) and BITS, the Financial Services Roundtable, held in March. We will hold a second event, which will continue to look at how new regulations impact the banking industry, this October in Chicago. Feel free to visit our Website (www.banktech.com) for more information.

Enhanced regulation is the price we have to pay to operate in today's world. I think Thomas Paine, a patriot, would understand.