Last week’s MiFID reunion meeting involved both a handy roundup of all the MiFID related proposals coming down the pipe (although it was a speedy roundup, given the number of items to cover) and an opportunity for industry participants to do what they seem to like best of late: vent about regulatory grievances. In the firing line were: the ISO process (too slow), the idea of “bastardising” the Bank Identifier Code (BIC) for entity identification (too unwieldy) and the regulators themselves (industry hedgehog versus regulatory steamroller), among others.
Of course, not everyone was as critical as each other on the subject of ISO standards development (as a lot of the more contentious subjects were under Chatham House rules, I won’t attribute them). A couple of speakers labelled the process as slow and cumbersome, but, equally, another said it had improved leaps and bounds over the years. “It now only takes two to four weeks to put through a change request, although the work needs to be sufficiently focused,” he said. “People need to move on from the old view of what ISO development is like.” An attendee from Swift was quick to agree.
The subject of BIC as legal entity identifier has also proved to be divisive over recent months and a number of people I have spoken to at various events feel it will never be fit for this purpose. One speaker epitomised this viewpoint by calling BIC a “colossally bad idea” as a means to identify individual entities, largely because of its structure and use as a vehicle for payments processing.
The reference data issue of standards was an emotive one and speakers largely agreed that the regulatory community needs to think about the standards that are already being used by the industry rather than attempting to force one size fits all. “We need to influence the regulatory process more,” noted one speaker. “The Committee of European Securities Regulators (CESR) isn’t following our advice about instrument identification. Valuable and much used identifiers are being ignored. Why should the industry change when something works?”
Clearing counterparties (CCPs) and their consequences also proved to be a controversial topic, as one speaker noted that it will be challenging to change a 600 page derivatives document in order to make it suitable to be cleared. “Regulation may well kill the OTC market,” he noted. Firms will also be facing the cost of recording and storing a whole raft of new data items, which could “cause chaos” for back end systems.
There was also agreement that the industry is fighting something of an uphill battle with certain aspects of regulatory reform. One speaker spoke of the firms’ need to invest in damage and cost limitation in reaction to regulatory reform rather than adopting a more forward looking approach. The regulators were blamed by some for stifling innovation and dragging the industry back to the dark ages; the Financial Services Authority (FSA) being one such culprit.
In related news, the announcement this week by the UK Chancellor George Osborne that the FSA is due for the chop, as the power to regulate the country’s financial institutions is to cede back to the Bank of England should therefore be received well by a number of parties. According to Osborne, the bank’s governor Mervyn King will take over from where the FSA’s chief exec Hector Sants left off and the FSA as we know it will become a subsidiary of the central bank charged with prudential regulation. Sants, however, will stay on for a further three years, rather than stepping down next year, in order to ensure a smooth transition.
However, what will this political decision mean for the industry at such a time of prolific change? It essentially backtracks on the work that has gone into making the FSA a comprehensive body for risk supervision and could result in a number of turf wars between the central bank and whatever the FSA becomes in its new incarnation. This is a problem that has plagued the US markets (given their huge number of regulators) and it is likely to mean some level of duplication in terms of reporting requirements, if the US example is anything to go by.
So, the market is set for yet more uncertainty over the coming months, as the UK deals with both a coalition government and the prospect of a coalition regulatory system. As we all know, during times of uncertainty, retrenchment is the natural reaction – so projects may well be put on hold, as firms wait to see the outcome of these political machinations.