As far as the regulatory and supervisory overhaul of Europes financial markets infrastructure is concerned, now that the G20 fanfares have died down, we now have to ask ourselves the age-old question of what happens next. How do we evolve the theory espoused in the de Larosiere and Turner reports into actionable plans?
The most significant missing link at this point is the availability of data to inform the early macro-prudential warning system proposed by de Larosiere. As Ive said in previous blogs, the entity most likely to get this key role in Europe is the ECB. As an organisation it already has a clear mandate for maintaining financial stability and without a doubt it certainly has the technological and intellectual capability to implement such a large-scale data standardisation, collation and analysis role.
The recently announced FSA liquidity rules will simultaneously increase the volume of data sent to the regulators. Whereas previously it has been only banks and brokers that have been required to report their liquidity positions to regulators, the FSAs new rules will require both UK-based banks and investment firms to report their liquidity positions more frequently and in greater detail. The corollary of this is that regulators will have far more accurate data from both the buy-side and sell-side. The agency that collates the European data should be able to create a much clearer macro picture.
In addition to all of this, there is a continued focus on improving the protection of client assets in the scenario of another broker default. Preventative initiatives being proposed here are shortened settlement cycles and institutional access to clearing and CCP mechanisms. Both of these moves will precipitate the need for a more efficient middle and back office amongst the buy-side.
The same holds true for the FSAs liquidity rules. For these to become actionable, huge changes in operational processes, particularly for the buy-side will have to be undertaken. That said, for those firms that have already implemented automated trade processing across all asset classes, the building blocks for the more efficient provision of data are already in place.