Tony Scianna, deputy head of strategy for SunGard’s capital markets business, said, “The financial regulations that are being introduced around the world, including Basel III, Dodd Frank, and the European Market Infrastructure Regulation, represent some of the biggest changes in financial services in 70 years. Yet even as we await further details of these rules, new regulations are being announced. With all of this uncertainty, regulatory risk – the risk of not being ready when the wave of regulations goes into effect – has moved alongside traditional definitions of risk to become a top concern.”
The ten trends SunGard has identified as currently shaping regulatory risk can be grouped into three main themes: transparency, efficiency and networks. They are:
Transparency:
1. Regulators will require firms to report a greater breadth and depth of up-to-date information, possibly on demand, to assist their efforts to reduce systemic risk and increase transparency.
2. Firms will need to be able to capture relevant data in as close to real time as possible, standardize it, and have access to it 24/7 for reports to relevant agencies and their own management.
3. The development of Legal Entity Identifiers will be one of many projects on which industry groups will coordinate for a single response to regulators.
Efficiency
1. Firms will focus on solutions that will transform their business process for data management as well as migrate away from traditional batch-based processes.
2. To help manage costs, firms will look for off-the-shelf, flexible and easily adaptable technology frameworks to help them meet whatever regulatory requirements develop.
3. The cost of clearing and expense associated with additional regulations in certain highly regulated asset classes are likely to rise, which might negatively impact profitability.
4. Budget that was allocated in 2011 but unused due to continued uncertainty may be re-evaluated. Firms may not allocate the same level of funding in 2012, potentially leaving them under-budgeted when the implementation details are finally confirmed.
Networks
1. The borders between geographies, asset classes and lines of business will continue to break down as regulators and management demand an enterprise-wide view of activities, risk and exposure.
2. Regulators will continue to cooperate with each other, and regulations will expand beyond initial scope wherever authorities adopt rules that are introduced in other jurisdictions.
3. Differences between regulatory regimes will continue to exist. However, regulators – with support from the industry – will aim to reduce regulatory arbitrage by working toward common goals of greater market oversight, stability and transparency.
Dushyant Shahrawat, senior research director at TowerGroup, a Corporate Executive Board company said, “To comply with the new regulatory structure, securities firms need to bolster risk management, data management, and operational infrastructure and get closer to real-time reporting. In order to help ensure preparedness and allow for rapid response to new and changing regulations, institutions need to be able to rely on solutions that can handle multiple securities and have demonstrated ability to support new industry products like OTC derivatives.”
