Watch your step in 2017
10 January 2017
Richard Colvill of Consolo offers a four-letter breakdown of all the fast-approaching regulatory deadlines that are due this year
Image: Shutterstock
This year should be an interesting one. Many of the regulations that we have all been focused on for what seems like forever will kick in and we, and the regulators, will see the impact they will have.
Whether its MiFID II, SFTR, CSDR, EMIR, BRRD, or any other four-letter acronym you can think of, 2017 will be a year of Challenging Regulatory Assessment and Performance (or keeping the theme of four letter acronyms, CRAP).
In all seriousness, some regulations, such as the European Market Infrastructure Regulation (EMIR), have the potential for significant impact on the securities financing markets, even though they relate to a different aspect of the financial services industry.
The regulators have made it clear that the collateralisation demands EMIR enforces can be met by the market and assume it will be moved via financing structures to meet the demands.
How this will affect demand as more firms come under the collateral requirements, only time will tell, but it could be positive.
Others, such as the Markets in Financial Instruments Directive and Securities Financing Transaction Regulation, require huge investment from firms.
There are no obvious new opportunities, just a huge logistical and technical challenge and a hefty bill鈥攁lthough effective utilisation of the data internally could identify otherwise missed opportunities.
One of the biggest challenges will be how to meet all of the regulations without breaching others鈥攖here are a number of potential conflicts as well as some requirements that are open to interpretation and so run the risk of being applied differently.
The securities finance markets have met many challenges in the past and have always found a way to continue to function and make money, and I am certain this will be no different in 2017, but the number of significantly changing regulations has the potential to create the perfect storm.
Meeting the requirements and keeping the business viable will be a challenge for some, if not all market participants, and has the potential to significantly change the industry landscape. Some participants will choose alternate market access or to re-think their strategic positioning in the market.
The weight of impact is likely to be relative with a disproportionate burden falling on smaller firms that don鈥檛 have the economies of scale or IT budgets to spend, as well as operations world where a lot of the requirements will need to be met.
We will have a better view of the overall impact by 2018 and there is little doubt that the way firms undertake this year of CRAP will define the way the market looks and functions for years to come
Whether its MiFID II, SFTR, CSDR, EMIR, BRRD, or any other four-letter acronym you can think of, 2017 will be a year of Challenging Regulatory Assessment and Performance (or keeping the theme of four letter acronyms, CRAP).
In all seriousness, some regulations, such as the European Market Infrastructure Regulation (EMIR), have the potential for significant impact on the securities financing markets, even though they relate to a different aspect of the financial services industry.
The regulators have made it clear that the collateralisation demands EMIR enforces can be met by the market and assume it will be moved via financing structures to meet the demands.
How this will affect demand as more firms come under the collateral requirements, only time will tell, but it could be positive.
Others, such as the Markets in Financial Instruments Directive and Securities Financing Transaction Regulation, require huge investment from firms.
There are no obvious new opportunities, just a huge logistical and technical challenge and a hefty bill鈥攁lthough effective utilisation of the data internally could identify otherwise missed opportunities.
One of the biggest challenges will be how to meet all of the regulations without breaching others鈥攖here are a number of potential conflicts as well as some requirements that are open to interpretation and so run the risk of being applied differently.
The securities finance markets have met many challenges in the past and have always found a way to continue to function and make money, and I am certain this will be no different in 2017, but the number of significantly changing regulations has the potential to create the perfect storm.
Meeting the requirements and keeping the business viable will be a challenge for some, if not all market participants, and has the potential to significantly change the industry landscape. Some participants will choose alternate market access or to re-think their strategic positioning in the market.
The weight of impact is likely to be relative with a disproportionate burden falling on smaller firms that don鈥檛 have the economies of scale or IT budgets to spend, as well as operations world where a lot of the requirements will need to be met.
We will have a better view of the overall impact by 2018 and there is little doubt that the way firms undertake this year of CRAP will define the way the market looks and functions for years to come
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