A merger of the CFTC and SEC
It might be against all common sense, but the two US regulators will definitely not be merging in 2022. It looked hopeful for a while in 2021, when CFTC commissioner numbers dwindled to just two, but the president’s end of year appointment list indicated that new CFTC commissioner appointees are waiting in the wings for approval.
The division of responsibilities between the two regulators is particularly blurry when it comes to newer asset classes such as digital assets, so there is likely to be continued friction during 2022. However, this is nothing new for the SEC and CFTC as longstanding political divisions that go back to the creation of the two regulators have seen them come into conflict over jurisdictional boundaries many times over the decades. These grey areas are unlikely to be sufficiently resolved to eliminate this tension any time soon and given the aggressive agenda set out by the SEC for 2022, more conflicts in other areas are to be anticipated before December. It will also be interesting to see how the CFTC’s new line-up of commissioners under the watchful eye of new chair Behnam will shape the derivatives regulator’s own agenda over the next 12 months. There will be much to look out for on the US FinReg front, just don’t expect a merger.
Global agreement on ESG standards
The painful process at the European Union level of agreeing a common taxonomy for environmental, social and governance (ESG) investment throughout 2021 is a great indicator that global agreement is unlikely in 2022. The infernally slow debate behind closed doors about how to treat natural gas and nuclear energy, among many other things, caused numerous delays to the ambitious programme of work. Differing national interests, political viewpoints and social norms are the root of the problem and on the global stage, these differences will likely increase in prominence.
This, of course, isn’t good news for a sector that is rapidly evolving and growing in influence across the capital markets and beyond. Financial institutions will have to continue to cope with the disparate patchwork of providers and a lack of key definitions for benchmarks and assessments.
Financial institutions ripping out all of their post-trade legacy systems
Post-trade might be back on the industry radar but these things take time and no one wants to take on an astronomical amount of project risk. The incoming settlement penalty regime under the Central Securities Depositories Regulation (CSDR) in February in Europe and the move to T+1 settlement in the US (and beyond) in the next few years will require firms to pay more attention to their post-trade processes in 2022. However, don’t expect Cobol programmers to be out of a job just yet.
Post-trade transformation is a slow process—even updating core systems can be painful. Mapping workflows and data to ensure that nothing is missed is essential if you want to make sure your new system captures all of the required operational nuances. There is also a tendency within the post-trade realm to revert to quick fixes via robotic process automation or operational bridges between systems, which further exacerbates the change management problem. Digital transformation is therefore more of a marathon than a sprint in this realm.
The elimination of all cyber-threats
Sadly, this is one thing that everyone in the market would love to see but is unlikely to ever happen. As we’ve witnessed with the increasing sophistication of ransomware and its related business-like evolution into a service, cybercrime is an innovative and sometimes lucrative sector. Big game hunting is likely to increase rather than decrease, as criminals of all kinds realise the potential to extort funds from all kinds of service providers across the financial services sector. Managed services providers are a particularly attractive target in this regard.
A return to ‘normal’ (whatever that is)
We’ve adapted relatively well to our new reality of working from home when required and returning to the office as dictated by the mandate of the C-suite. But as we have adapted, so has the virus. One thing we can expect in 2022 is further disruption from things directly and indirectly related to the pandemic, let alone the continuing climate change. Three years in, and the markets remain volatile and any recovery will be subject to numerous bumps along the way. Risk management teams will certainly be busy!