The trend of deregulation of banks, service providers and market infrastructures has quickly reversed since the financial crisis. With regulation on the rise, for better or for worse, the industry must embrace the changes, panel participants at the SWIFT Operations Forum Americas in New York said.
There is no area of financial services anywhere in the world not being touched by regulation, said Kelly Mathieson, senior vice president of J.P. Morgan Worldwide Securities Services, who participated in the panel. This is going to be the way the financial services industry operates.
Mathieson said some of the pending regulation will benefit service providers such as the overhaul of the way the tri-party repo sector works while other mandates make less sense. I dont understand the credit-worthiness of a CCP, Mathieson said, referring to the pending requirement under Dodd-Frank that derivatives must be centrally cleared. Mathieson said such an arrangement increases risk, which mutualizes loss in the industry. We will raise our risk to the lowest common denominator of risk management practices.
Michael Poulos, partner at consulting firm Oliver Wyman and head of its financial services division, warns that at the end of the financial crisis there wont just be a reversion to pre-crisis conditions.
Alan Smith, COO and managing director of Securities and Fund Services at Citi, said there is regulatory gridlock in the US. Dodd-Frank demands things must be done, and those dates are already gone. Market players are not meeting deadlines, and it does not appear the political environment in the US cares.
Responding to Smiths comment, David Cruikshank, executive vice president and CEO of Treasury Services at BNY Mellon, said there is also a lack of appreciation of the global nature of the businesses we manage. The impacts of regulations are often parochial and difficult to implement as well.
Poulos said outside the US, however, there is a more healthy balance in terms of the goals of regulatory reform having broad and open period of dialogue. The Volker Rule and Dodd-Frank are a little more cast in stone. The challenge is finding a way to implement them in a way that is consistent but not unduly burdening the market.
Rather than bemoan new regulation, however, it is better to accept it and work with it, Mathieson said. We might as well embrace and implement it in a way that is meaningful to our organizations, she said.
Poulos said increased regulation is one of just six trends that will emerge after the financial crisis, and which will affect not only banks and their service providers but the worlds economy as well. In addition to regulation, they include: the end of falling interest rates; a deleveraging of balance sheets; aging of the global population; the end of the assumption that sovereigns are credit risk-free; and greater divergence in GDP and financial services growth between developing and emerging markets.