NEW REGS spell BIG OPPORTUNITY

“Treasury’s Plan Would Give Fed Wide New Power” barked the headline on page one of the March 28 New York Times. In case anyone missed it, that’s the Republican administration proposing new regulations on Wall Street.

You don’t need to be a stockholder of a troubled brokerage firm or investment bank to think that new federal regulations of fi nancial institutions might be good for investors. But there’s one group more than any other that stands to benefit handsomely: companies that develop and market regulatory compliance products and solutions.

As Tier One institutions reach a new pain point, their characteristic resistance to thirdparty vendors of systems and technologies will weaken, creating new opportunity for smaller and middle market companies with tools and solutions that already address those risk management, valuation and compliance concerns. The silver lining to the cloudy economic forecast is the opportunity for well positioned firms to markedly increase revenues and valuations in what is arguably the most roiling confluence of macro-economic conditions in a generation or more.

This isn’t the first exogenous event to spur demand for new oversight and the legal, regulatory and compliance tools and solutions the added scrutiny requires. The Patriot Act, Basel II, Sarbanes Oxley, and even decimalization have all been tonics to this growing niche. The current firestorm in the mortgage and credit markets is at least as potent a stimulus as any of those in recent memory.

As happened in each of those earlier bursts of regulatory fervor, we expect to see a wave of demand (and rising valuations) for value-at-risk, counter-party risk, source- and transparency-of-funds solutions and related products.

At the risk of sounding immodest, we predicted that more “bodies will float to the surface” even before Bear Stearns knew it was in deep water (Outlook + Strategies, December 2007, www.berkerynoyes.com). Months before that New York Times headline proclaimed new zeal for federal oversight, we forecast that the political tide would shift in favor of new regulations. And so it has.

We think this is a good time to explore how market change is affecting your business and steps you can take now to capitalize on it.