Read this article and learn about:
- The regulatory landscape for collateral management
- Tactical projects vs operating model optimization
- Handling change as the status-quo
- Taking a strategic approach to regulatory-driven change
David Field, Managing Director
The Field Effect
Nick Stafford, Head of Operations
The Field Effect
With the regulatory merry-go-round turning at a healthy pace, the industry is starting to feel the effects of successive tactical projects and a race to compliance at the expense of optimization. With phased integrations and multiple iterations (see MiFID II, Basel IV, UCITS V), it feels like work finishes only for another iteration of regulation to be published. In collateral management, the key short-medium term regulatory timelines include; EMIR margin requirements (Dodd-Frank has already been implemented in the US), MiFID II implementation, and the reporting obligation of SFTR. This all means, regulatory-driven change is here to stay.
How can we handle change at such a pace? Firstly, organizations need to be comfortable with change as the ‘status-quo’, they need to ensure their change function is fit-for-purpose, and they must ensure that methodological approaches to preparation and implementation are embedded. Secondly, firms need to evaluate how they are approaching ‘the problems’. The volume of change projects has increased since the financial crisis and firms are often switching focus to assessing new regulations too late, meaning that tactical projects are regularly the only option. This leads to highly inefficient front-to-back office processes and technology architectures.
The need to move from a tactical to a strategic approach
As margins have been squeezed due to increasing capital requirements, the waste caused by tactical projects is getting more and more difficult to absorb. Short-termism is a key contributor and firms should consider opportunities to widen the lens of their regulatory focus. Specifically on the buy side, many custodians are pulling back from offering some of these services as an outsourced model because it is becoming increasingly expensive.
As margins have been squeezed due to increasing capital requirements, the waste caused by tactical projects is getting more and more difficult to absorb.David Field & Nick Stafford, The Field Effect
We wholeheartedly endorse the concept of a central change function and even a Chief Regulatory Officer as a senior position in any financial organization. Endorsement comes with a condition – their KPIs must be based on the efficiency of regulatory compliance. Our view is that constant change is unlikely to abate, the impact of this change is inefficiency, and the challenge facing the industry is to formulate a better strategic approach to a constantly shifting business operating model.