Wealth management and the regulatory landscape

Like other financial sectors, wealth management has had to keep pace with rapidly changing regulations and geopolitical realities. These shifts have forced major players to build more versatile compliance teams—and also reconsider their tech stacks in order to react more quickly to regulatory changes.

Sanctions

The full-fledged Russian invasion of Ukraine in February 2022 seriously upended the wealth management space. FINRA, OFAC, and other regulators enforced a new sanctions ecosystem, which prevented wealth management firms from working with newly sanctioned individuals, barred investments in certain key markets, and prevented payments into sanctioned territories—which often shifted quickly according to where front lines were located.

While last year’s volatility affected market valuations and required staffing changes, KPMG predicted in the beginning of the year that 2023 would inolve greater interest in mitigating the effects of geopolitical uncertainty through regulations that solve for stability and transparency. With the rapid collapse of Silicon Valley Bank and other major financial institutions in March 2023, this has become an even greater priority.

Systemic and liquidity risk

With regional banks collapsing or in need of major government and private-sector assistance to survive, lawmakers saw a sudden—if overdue—need to address systemic and liquidity risk in the financial system writ large.

Beyond the scope of US regulations, the Financial Stability Board and the International Organization of Securities Commissions have released recommendations on liquidity management tools that don’t fully align—suggesting the need for further interfacing in order to create a coherent regulatory landscape.

ESG Rules

Finally, environmental, social, and corporate governance (ESG) rules are now subject to a greater range of regulations compared to last year. Granted, the U.S. Securities and Exchange Commission (SEC) clarified its view on ESG-focused financial instruments last year, and has conducted enforcement actions against groups it thinks have misstated climate risks under existing rules or committed other violations. And, announced in September, the regulator’s “names rule” is intended to further prevent misleading branding of financial instruments and initiatives.

In response, asset-management leaders like BlackRock have pivoted some of their ESG-esque endeavors. The Climate Transition-Oriented Private Debt Fund, for example, comes just after BlackRock shuttered two ESG funds in order to meet these new SEC requirements.