We have written extensively about the increasingly stringent regulatory environment, and flagged it as a “trend to watch” in 2010.  This trend picked up significant steam during Q1 with the ongoing recall issues faced by Toyota, which we have also chronicled in detail.  While we were dead-on with respect to this trend, if anything we underestimated just how quickly the trend would gain strength.  A quick glance at this week’s headlines illustrates the point:

• FSA insider trading scandal: the UK’s Financial Services Authority (FSA) raided 16 offices of Deutsche Bank, BNP Paribas and Moore Capital in an insider trading investigation, in the process arresting 6 employees of the three firms
• SEC scrutinizing hedge fund bets: the US’s Securities Exchange Commission (SEC) has launched an investigation into whether hedge funds shorted new share issuances in violation of Rule 105 of Regulation M (aka the “anti-manipulation rule”)
• Financial overhaul bill gains momentum: buoyed by the passing of President Obama’s healthcare bill, Senator Dodd’s financial reform bill is enjoying newfound momentum and appears reasonably likely to become law in some form in the foreseeable future
• FCPA investigations skyrocketing: as we wrote about last week, the DOJ has prosecuted more Foreign Corrupt Practices Act (FCPA) cases in the past 3 years than in all previous years (33) combined.  Further, the DOJ has dramatically increased aggressive tactics, including actively targeting individuals and in some cases using undercover agents

As we have advised again and again, such regulatory scrutiny requires firms playing in these arenas to have rock-solid information management controls, alongside the ability to quickly ascertain what is happening/has just happened in order to get ahead of internal and/or regulatory investigations.  More specifically, here are four areas these trends are increasingly forcing companies to have a firm handle on:

• Robust information management: the ability to respond effectively to an investigation – or civil litigation, for that matter – is largely dependent on the ability to identify, find, preserve and collect the right information very quickly.  Simply put, the more work that is done to organize, tag and “prune” information up-front, the more effective (and quicker and cheaper) the response will be
• Strong information governance controls: traditional financial firms are generally well equipped to deal with information governance, as they have had to do so for many years.  However, today’s soon-to-be-codified definition of “financial firm” will extend far beyond the JP Morgans and Goldman Sachs of the world, and will instead include firms that have financial offerings or attributes…which is likely to include the likes of car companies, retailers and credit unions to name just a few non-traditional classes
• Quick, accurate Early Case Assessment (ECA) capabilities: increased regulatory scrutiny has the obvious impact of more companies and employees being caught doing something they should not have been.  If a company is going to get caught in a bad situation, it is much better to know this from the outset…rather than weeks or months later, after ESI has been identified, preserved, collected, processed, culled and only then assessed.  Regulators and courts are typically (almost always?) more lenient on firms that recognize the err of their ways and cooperate from the outset
• In-house eDiscovery capabilities: cost-effectiveness in regulatory responses and civil litigation can be greatly enhanced – upwards of 50-80% – by bringing eDiscovery capabilities in-house, including legal holds (notification, preservation, collection), ECA, processing, culling and even document review

A single data point does not necessarily signal a trend; four or more consistent data points, however, strongly suggest something is afoot.  Companies would be best served by anticipating what could happen to them and preparing accordingly.