We've all been resigned to the fact that a sweeping set of new financial regulations will likely become real this year. The process is well underway, as all players--both governmental and private--aim to position themselves ahead of the curve. Crunch time is just around the corner, and we'd all be wise to take stock of just what "financial reform" really means. 

Next month, Congress will get the ball rolling. The House financial services committee, led by Rep. Barney Frank, will hold hearings to air the major reforms initiatives put forth by Timothy Geithner, Treasury secretary, reports the Financial Times. 

It will likely focus on key issues, reducing the power and reach of the SEC, or giving the Fed systemic risk oversight, or the creation of a "resolution authority" that would allow for the seizure of a failing bank holding company, or perhaps a new consumer watchdog aimed at regulating financial products as varied as mortgages, credit cards and mutual funds. Which strikes some as a CPSC for financial services. The goal is be granted the power to ensure the marketing of financial products serve the interests of ordinary consumers. 

The laundry list of reform proposals is fiercely ambitious. If every proposal were made law, the impact--and likely the collective societal cost--would rival Sarbanes-Oxley. From systemic risk, to shareholder rights, to OTC market clearing, to insurance, to credit cards, to student loans, to exec pay, to alternative investments, to short selling and even more, the administration is leaving no stone unturned. 

In some ways, this is shaping up to be a colossal battle between the reform proponents and the industry itself. The zeal of the administration will be matched by the zeal of the industry. Hopefully, this will bring out the best in both sides. (I know that sounds naive). But the government has to come forward with ideas that can avoid circumvention and that truly achieve stated goals. Industry has to be willing to welcome the spirit of reform and not seek loopholes. 

A commentary by James Kwak in the Washington Post puts it this way: "Ultimately, I think, the long-term success of this wave of regulatory reform will depend not on the technical skill with which regulations are designed--after all, as one reader said in an email to me, who could have predicted 20 years ago the problems we are facing today?--but on the ability of the new regulation to avoid capture and distortion by the financial sector itself." 

In the end, we'll be drowning in talk about specific proposals. Collectively, they will be historic, but there will be lots of devilish details. This will have an impact on companies beyond financial services, so you are best off if you tune in with an eye on compliance. If you've had the foresight to invest in your compliance apparatus, it will serve you now. - Jim