Since the start of the crisis over a year ago, much has been said about the similarities and differences between the current slowdown and the “lost decade” of Japan, a slowdown that affected the world #2 economy for well over a decade and which it has yet to recover from. There are many differences of course, but a lot had been blamed upon the reluctance by Japanese authorities to let “sick” financial institutions go down. And at least in that regard, there are many similarities with US authorities trying to save several US institutions (although even letting others fail has been regarded as a mistake by many thus confirming that there is no way to come out on top in such a context).

And today is a grim day even by Japanese standards. They were set to release their GDP for the last quarter and estimates were very negative with a consensus of a -11,6% decline. But it came out a lot worse actually, with a 12,7% decline, the worst since 1974. Exports of cars and high end goods such as tv’s. And of course the rising yen is not helping at all. So exports came in with a decline of 13,9%. “There’s no doubt that the economy is in its worst state in the postwar period,” Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo. “The Japanese economy, which is heavily dependent on exports of autos, electronics and capital goods, has been severely hit by the global slowdown.”

Is the same to be expected of the US economy? Thankfully, not for now at least as the US economy is less dependant on exports and its major stimulus should be able to get things more stable. Of course, a deterioration of either the real estate markets or confidence in the financial markets could put more downward pressure leaving the Fed and Treasury will little left to do.

And perhaps the worst scenario would be the one where the world starts to lose belief in the US dollar and in the ability of the US government to pay back its debt. There have already been hints that countries like the US could lose their AAA credit rating and that could be setting a very dangerous background for the world in general.

Am I being dramatic? Perhaps. But let’s not forget that Japan is one of the major economies in the world and the US is not beyond such tragic problems. It is important to act as quickly as possible because once you reach a point like Japan has, there is little left to do except wait for things to get better, and as Japan has discovered, once that happens, you are in for a long wait.

The positive aspect about all of this is that everyone seems to agree on the urgency of the situation and the need to act now, which might be what saves the US economy in the end…

In recent years, the financial sector has undergone a significant ethical revolution that has transformed the industry. Measures promoting market integrity and respect for ethical principles are repeatedly mentioned in the media, with a particular emphasis on the fight against money laundering and terrorist financing. This growing movement has highlighted the important for effective internal compliance.

The compliance function is an independent unit within a given firm that identifies, evaluates, and controls the firm’s risk of financial loss, reputational damage and judicial reprimand. In several countries it has become a mandatory function in financial institutions. Why is there an increased demand for compliance now? It can be explained by three reasons.

First, many financial and corporate scandals (such as Hollinger Int’l, Enron, Barings Bank, BRE-X and Madoff Investment Securities) have been widely reported in the media. The events we have experienced in recent years have led legislators to toughen the requirements for internal control. This is one reason why compliance has become increasingly important.

Second, in the midst of recent economic turmoil, the need for transparency has been underscored—whether in connection with CDS (Credit Default Swap), MBS (Mortgage Back-Securities), ABCP (Asset-Backed Commercial Paper) or other complex, structured financial products. The dangers of uncontrolled leverage and under or non-capitalized positions in terms of systemic risk are now evident. The complexity and risks of these complex products are not fully understood. Statistical computer modeling is an important tool but needs to be coupled with human intervention and sound judgment, thereby explains another reason why organizations are focused on compliance.

Third, the general regulatory environment continues to grow more complex as offenders are being pursued more aggressively than ever. Self-regulation, backed by industry and trade associations, has played a vital role in regulation in Canada and the United States. Compliance professionals are working today in an environment of rapidly evolving marketplaces and sophisticated and innovative products. The next years will involve a lot of challenges. The current system needs transparency and timely information. Thus, there is increased demand for compliance within the financial industry.

It is only logical, therefore, that self-regulatory organizations (SRO) are growing at an exponential rate. However, despite the generally held view that there is never enough regulation, some regulatory organizations are becoming too big and risk going out of control. Some agencies may exaggerate the need for their presence and create unneeded regulations in order to “feel” useful. Rather than be costly, ineffective, and distorting, regulation should encourage proper behaviour without imposing an unnecessary burden on participants through high compliance costs.