“Is evolution the antidote to regulatory pain?”
8th June 2017
Tory Clements, Regional product head collateral management for the Americas, Lombard Risk discusses the rise in CCP popularity to satisfy market demand, the need for connectivity and alignment across front office, risk, treasury, collateral and settlement processes for both the sell and buy side and why a robust collateral management solution can serve a dual purpose, in both managing risk and in mitigating the burden of regulatory reporting requirements.
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The 2008 financial crisis highlighted substantial weaknesses in global capital and liquidity requirements. Consequently, the Basel Committee on Banking Supervision made significant revisions to its guidelines intended to strengthen capital adequacy. Basel III regulatory changes pose a significant challenge, with market participants and regulators at odds regarding the impact of upcoming regulations.
There is also still uncertainty coming from the regulators, including the recent delays from The International Capital Market Association’s European Repo and Collateral Council to evaluate the regulatory impact ahead of enforcement.
Firms also continue to face a number of regulatory hurdles including the impending Securities Financing Transactions Regulation (SFTR) reporting requirements. SFTR covers which securities and commodity lending, repo and sell/buy-back transactions and Article 4 stipulates arduous trade repository transaction reporting and recordkeeping requirements. Banks, investment firms, central counterparties (CCPs), central securities depositories, financial counterparties and corporates must all comply with the regulation.
The progressive nature of regulations such as Basel requirements allow market participants to comply with regulations gradually, but the complexity and cost of meeting multiple requirements will likely result in a reduction in the number of institutions participating in the securities lending market.
With this in mind, compliance with the new regimes will prompt fundamental changes to a firm’s internal infrastructure and require new workflow processes.
More information on Lombard Risk’s collateral management solution, COLLINE is available online here.
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