Read the article and learn about:
- The regulatory landscape for collateral management
- Tackling the impact of SFTR
- Tactical projects vs operating model optimization
- Taking a strategic approach to regulatory-driven change
Managing Director, The Field Effect
About the author
The Securities Financing Transactions Regulation (SFTR) is the latest regulation influencing all aspects of the securities finance market in Europe including transaction activities and collateral management. SFTR is another effort by the European Commission to increase financial market transparency, improve execution and provide greater harmonization across Europe. This article gives general guidelines on collateral optimization in a time of constant regulatory change, especially when tackling the impact of SFTR.
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 for compliance at the expense of optimization. With phased integrations and multiple iterations (e.g. 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 now also 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’. Secondly, firms need to evaluate how they are approaching this change. 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, Managing Director, The Field Effect
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.