“We’ve learned that what is extreme is much more plausible. And what is plausible is much more extreme.” (Lawrence Sweet, senior vice-president at the Federal Reserve Bank of New York)
Regulation and its impact on the global financial services industry was a key topic as tongues at Sibos 2011 continued to wag well into the second day. Much of the talk on the panels was related to the consequential risk of new legislation, such as Dodd-Frank and Basel III, which are currently being tossed and turned by regulatory bodies in the US and Europe.
Tuesday’s ‘Big Issue’ debate focussed on financial transaction infrastructure post-crisis. Michael Bodson, chief operating officer (COO) at the Depository Trust and Clearing Corporation (DTCC), joked that deciphering this legislation is a key concern, particularly as Dodd-Frank adds up to a pile of paper “as high as 11 Empire State buildings”. But for many executives, it’s the inability to predict the shape of this burgeoning legal landscape which is one of their biggest concerns.
The current sense of unease surrounding the financial services industry was highlighted in the Opening Plenary on Monday. Yawar Shah, SWIFT chairman, said: “Last year at the opening plenary in Amsterdam you were all feeling very optimistic. Now you are probably confused about the future of the industry.”
Thomas Zeeb, chief executive officer (CEO) at SIX Securities Services, echoed these sentiments the following day. He said: “Uncertainty surrounding the impact of incoming regulation and where it is going to land is an ongoing concern for the financial services industry.”
He focussed on the impact of the Markets in Financial Instruments Directive (MiFID) and said it may have lead to the opening up of competition in the exchange space, but has also inevitably resulted in market fragmentation rather than the consolidated environment aimed for.
Some exchanges are currently struggling to survive in this new legislative landscape created by MiFID, but those that do are united by offering the best trade price and safest risk, the SIX Securities Services CEO stated.
In the first big debate on Tuesday, a panel including Werner Steinmuller, managing director, head of global transaction banking and member of the group executive committee, at Deutsche Bank, Lawrence Sweet, senior vice-president at the Federal Reserve Bank of New York as well as the DTCC representative discussed the anticipated impact of regulatory change on payment infrastructures.
The latter highlighted the various issues including the move to the central clearing of over-the-counter (OTC) derivatives and increased reporting demands from regulators.
Mr Bodson said that the need for transparency, greater management of risk and improvement of standards were all worthy aims for the sector. However, he argued that the “devil is in the detail and, as you wind any regulatory changes through the system, that’s where the tensions will arise”.
He explained that global consistency between regulators was a major concern for payments infrastructures. “If regulators don’t trust each other, then why should the industry agree with each other? Then there is no way that any changes can go ahead.”
“There has to be a change to the operating model. There are areas which work well within the payments infrastructures created by the industry, but these pieces are not aligned. However, rather than re-investment, more resources need to be put into improving relations between national infrastructures.” Mr Bodson concluded that there needs to be a level of trust surrounding financial markets, which has to be extended across borders even as markets become more stable.
The impact of regulation on liquidity risk management solutions was discussed by a panel towards the close of the second day. The session, which featured Ian Banks, head of HSBC Securities Services Asia, HSBC, Kevin Brown, head of Global Product Management, RBS GTS, head of EMEA Funding and Liquidity Risk, Corporate Treasury, Morgan Stanley and Steve Lopez, SVP, global head of Market and Liquidity Risk Management, Northern Trust, asked whether the industry had learned the lessons of the past financial crisis.
The panel agreed that the answer will remain unconfirmed until the true nature of regulatory change is revealed. Steve Lopez said: “The implementation of liquidity rules is an ongoing process due to the continuing fluidity of incoming rules. But the instability in the economic environment is making it harder for the industry to understand where it is going next.”
He concluded that there needs to be an agreement of rules across the different territories by regulators, which should guide them towards consistency both in terms of liquidity management and, as others have said, industry-wide regulation.
By Jim Ottewill