Yesterday I sat on the closing 'Crystal
Ball’ panel session of Sibos’
Market Infrastructure stream. My fellow panellists and I were
asked what was going to be high on the radar for FMIs
(financial market infrastructures) over the next three
None of you will be surprised to learn
that regulation was at the top of everyone’s
FMIs and the financial services industry
as a whole must now get used to a constant flurry of
ever-evolving regulation. It would be nice to say that the
pendulum will go back to a pre-2008 situation but it would be
This means that FMIs and other
institutions in the value chain must now readjust their
business aims and aspirations; in a post-crisis world, the
compliance burden will continue to cost everyone significant
resources both in time and money.
Those of us in the market infrastructure
space are facing a particularly heavy torrent of regulation.
From Emir to CSDR, Dodd-Frank to Basel III, the list goes on.
In isolation, any of these regulations would be manageable
but taken together, they are a huge challenge.
As FMIs are the backbone of the
financial system, it is right that we should have a stricter
regulatory regime than other types of financial
No-one would argue that FMIs should be
allowed to take proprietary positions. However, I would like
to see a more principles-based approach to regulation rather
than a prescriptive approach accompanied by much clearer
guidelines for FMIs as to how regulations should be
As a case in point, infrastructures
quite rightly have a key part to play in maintaining the
integrity of the financial system through the flow of
high-quality collateral. If you ask any CSD, each one would
agree that CSDs shouldn’t compete on quality of
However, we don’t
necessarily agree on what I high-quality collateral.
What do terms such as 'liquid’ and
'easy-to-understand’ mean? Regulators have a
role to play here by guiding FMIs on issues such as these
rather than letting them fly blind.
Compliance departments at FMIs are
tasked with not only meeting the demands of current
regulations, but pre-empting future regulations that have yet
to be implemented.
The approach of regulators currently is
to implement regulations without necessarily having a clear
understanding of their interdependencies.
When unintended consequences manifest
themselves, regulators are in the habit of issuing
'sequels’ or 'fixes’ to
regulations. We’re now in the habit of seeing
'Mifid, 'UCITS’ or 'Basel’ with
ever-lengthening Roman numerals attached to them.
The danger here is that FMIs can then be
penalised in retrospect for not envisioning future
regulations adequately enough. FMIs have a critical role to
play in the stability of the financial systems but we
shouldn’t be the final safety net that covers
the mistakes of other players in the value chain.