Regulatory Changes- Top 5 Things to Think About

Posted by Hatstand on the 29th June 2011

Regulatory Changes ? 5 things to think about

1. Firstly make this a top drawer management agenda item ? it is less than eighteen months away.

The impact of the changes will affect the whole organisation, not just the part based in the relevant jurisdiction (MiFID in Europe, Dodd-Frank in the US). The timelines are not likely to be reviewed should be at the forefront of the executive agenda for the next year.

2. MiFiD II, Basel III( Europe) and Dodd- Frank (US) (and other regulatory changes) will all have impact at the same time.

The implications of all three need to be clearly understood. They will hardly leave any function untouched but some process or data set will be affected by all of them, so their impact to the whole of your organisation will need to be clearly understood to avoid multiple changes to the same data set or process.
So, (a) understand how each directive will affect your organisation, (b) define an action plan and (c) manage the change very carefully. Also, consider some of the indirect implications, if your organisation needs to be authorized because of MiFID II (e.g. a company that trades exclusively in their own account), you will have to implement aspects of Basel as well or if your organization trades directly in a US exchange they might be affected by Dodd-Frank.

3. Ring-fence budgets ? manage your project portfolio and use the investment as an opportunity.

Some changes to business process may lead to a complete review of whole sections of your operations. For instance, MiFID II will extend transparency rules to non-equity financial instruments, that is an opportunity to review the support to trading those instruments but it could also be a way to check if it is still viable to trade some products given the potential complications and the effect on your overall risk appetite statement.

4. Invest in your infrastructure to ensure it can cope with the huge increased demand for bandwidth and storage capacities; step up your monitoring systems across the estate.

The changes to the trading guidelines (MiFID II and Dodd-Frank) specifically require more ?robust? systems to ensure smooth continuity of operation, avoid crashes due to overload and continuity of operation is protected. In most cases this will translate in more bandwidth, more storage and possibly more processing power. Achieving all this in an efficient and cost effective way implies creating a monitoring infrastructure to make sure that extra capacity is called upon when ever is necessary.

5. More than ever focus on data ? a clear data strategy and data warehousing technologies will provide invaluable advantages in the move to compliance ? but plan for scalability.

Data and data storage will be key factors in complying with those rules. The interconnections between the different directives will affect data sets. There will be an increase in reference data and market data. Regulatory intervention into established market processes always produces unknown and unintended consequences. Scalability becomes an essential requirement to cope with some of those unknown and unintended consequences, the regulators do not have a crystal ball and they cannot predict how the market will react to some of their ?directions?, therefore a flexible and scalable data management system is required to be able to cope with the unknowns once they become known. On top of that, the extension of best execution rules to non-equity instruments (MiFID II) will generate more storage requirements since more reports will need to be kept for a certain number of years.

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