The 2008 crisis sparked the most significant restructuring of the global financial regulatory framework in decades – a process that still continues today. Larry Thompson, Vice Chairman of DTCC, General Counsel of DTCC and Chairman of the Board of DTCC Deriv/SERV LLC, shares his insights on the regulatory and policymaking landscapes and key areas of focus for the firm in the coming year.
It was a busy year in the EU as policymakers made progress advancing several high-profile initiatives. What were the key focus areas in 2014?
The majority of activity centered around three key regulations – the implementation of European Market Infrastructure Regulation (EMIR), the ongoing review of the Markets in Financial Instruments Directive (MiFID II) and the new regime for depositories (Central Securities Depositories Regulation, CSDR). Each of these regulations will significantly alter the current regime governing financial services and impact virtually every firm in the industry. As you would expect, there has been a great deal of dialogue in Brussels over these regulations, and we expect this discussion to continue in 2015. In addition, we continued to work with policymakers on issues related to regulatory equivalence, transaction reporting, cybersecurity, collateral management and Europe's move to a T+2 settlement cycle, which started in October 2014 ahead of the ECB’s T2S project.
How does this compare to legislative and regulatory activity in the U.S. and Asia?
In the U.S., we continued to work collaboratively with policymakers to advance technical fixes to the Dodd-Frank Act – with our top priority still focused on removing the indemnification provisions from the law. We’re also closely following the reauthorization of the Commodity Futures Trading Commission (CFTC) and playing an active role in the ongoing implementation of swap data reporting rules and efforts to expand information sharing between the public and private sectors to protect critical infrastructures from cyber attack.
In contrast, our focus in Asia Pacific centered on working closely with regulators and industry participants on new reporting requirements for trade repositories. We worked to ensure smooth implementation of these reporting mandates in Japan, Singapore, Australia and Hong Kong.
How has DTCC’s relationship with regulators changed since the financial crisis?
Maintaining strong regulatory relationships has always been a top priority for DTCC, but we have strengthened and expanded our network of supervisory relationships globally since the financial crisis and as our organization has grown globally. A unique dimension of this relationship is the increased degree of collaboration between DTCC and regulators, who are turning to us for insight on critical industry issues. For example, last year we were asked for the first time to testify as the sole trade repository representative before the European Parliament on the role of repositories in improving the stability and transparency of the financial system. Given our experience, we are well positioned to work collaboratively with lawmakers and regulators to share our insights and expertise.
Have you been able to identify common themes or areas of concern across jurisdictions?
Absolutely. Regardless of what is happening in each market, there are overarching issues debated in virtually every jurisdiction. We’ve seen this in the near-universal concern over the cross-border impact of new financial regulations, challenges related to systemic risk and, more recently, the growing threat of cyber attacks. Given the industry’s interconnectedness and global nature, it’s no surprise that what occurs in one market can have an impact on others.
From DTCC’s perspective, one important area that all policymakers need to continue focusing on is data harmonization. While regulators have access to more transactional data than ever before, there are multiple challenges when it comes to transforming this information into actionable data that can assist regulators in monitoring the build-up of risk in the system. As the operator of the only true global trade repository, DTCC understands this concern and continues to engage with policymakers to support data standards globally.
What do you see as the top challenges impacting global policymaking in 2015?
Regional differences within the global regulatory environment are creating the biggest impact. While concerns regarding harmonization and the cross-border application of rules are top of mind, a key challenge is finding the balance between national regulatory interests and the need to monitor risks in a global marketplace. Regulators have the responsibility to protect investors and markets within their jurisdiction, but they must do so as part of a wider, global framework. It will be difficult to achieve the G20 goals of greater transparency and systemic risk mitigation unless policymakers agree on global standards and work collaboratively to implement them.