By David Dixon, Product Manager for Misys' Summit
FT
Earlier this month, the U.S. Securities and Exchange Commission
(SEC) and the U.S. Commodity Futures Trading Commission (CFTC)
released the long-anticipated definition of a swap. As expected by
the majority of industry participants, the SEC and CFTC sided with
the wording in the Dodd-Frank Act. Although there were no big
surprises in the content of the announcement, banks and financial
institutions still have a huge amount to contend with on the
regulatory front - including registering themselves, complying with
compensation rule changes, establishing living wills and of course
determining changes to their business strategy - in addition to the
newly outlined definition. It may seem that the software changes
necessary for this one piece of Dodd-Frank are a small part of the
overall picture. However, having the right technology in place
plays a big role in being compliant and running an efficient
business.
Industry Implications
The compliance clock started ticking on July 11, 2012, when the
definition was announced to the public, but the onset of the
regulations was realized long ago. From our experience, and
speaking with our clients, the most difficult element of complying
with the new definition is the short timeframe - just 60 days to
implement in some cases - setting the deadlines as early as this
September.
Much of what banks and financial institutions need in terms of
software solutions is available today, however to implement and to
test these systems takes more time than is currently at hand. In
addition, there are elements of Dodd-Frank to come that will affect
areas of the solution previously implemented, e.g. trade reporting
will come into effect in September, but the requirement to use
legal entity identifiers (LEIs) will come to fruition at the end of
the year. This adds additional pressure on firms and further
complicates the software update process.
Prioritizing Updates
Over the next few months, there will be a huge scramble in the
industry, as a multitude of regulations go into effect at different
times before the end of the year. The process is akin to buying the
latest computer and almost immediately a newer, faster version is
available. Similarly, deciding at what time to implement new
compliance software when you know there are future regulations,
bringing additional changes, adds a level of complexity to any
decision. Firms have to draw the line somewhere and the ultimate
decision will be made based on different implications at each
organization.
In addition, as the deadline is fast approaching, short-term
fixes have to be more tactical, while strategic solutions will be
implemented down the line. It's not possible to get everything done
at once and firms have their plates full.
Global Impact
Although the SEC and CFTC's announcement concerns only
Dodd-Frank and the U.S. market, the implications are global. As
there is a general drive for regulatory harmonization across the
world to avoid potential regulatory arbitrage, it would be safe to
assume that the rules will look similar across the globe.
Therefore, banks and financial institutions need to be prepared to
handle similar regulations in other regions.
U.S. banks are well advanced in their planning, and European
organizations are close behind, however, in Asia, where there are a
lot of different jurisdictions, regulations and deadlines are less
certain. We still continue to see little interest regarding the
SEC/CFTC definition from firms in Asia. This firstly raises the
issue of whether businesses will move to Asia as a consequence of
less regulation in that area. The second concern is whether Asian
firms are prepared for when the U.S. regulations will take
effect.
These are big issues that banks will need to contend with over
the next few months. But there is a third consideration. Even
before Dodd-Frank there was pressure to globally consolidate
software systems; with Dodd-Frank this continues in order to get
the benefits of consolidated reporting, increased globalization and
to allow greater risk controls. If firms update to comply with this
definition in a hurry, they risk ending up with ad-hoc systems to
meet the requirements of various regions versus deploying a unified
and efficient infrastructure.
Originally published by http://tabbforum.com