More than 30 senior-level risk and operation executives from across the securities industry gathered at The Depository Trust & Clearing Corporation’s (DTCC) Systemic Risk Roundtable to discuss current and emerging systemic risks impacting financial services practitioners.
The Systemic Risk Roundtable, hosted at DTCC’s Jersey City office in early April, covered topics including cyber security, a look forward on global policy and monetary trends, and an overview of DTCC’s continued investment in its Risk Data Warehouse, Portal and Risk Reporting capabilities to support enhanced risk management capabilities.
“We introduced the Systemic Risk Roundtable Series in 2015 as an informal forum to facilitate a discussion on key risks and risk mitigation techniques across our member firms, and today it continues to generate positive momentum and important dialogue,” said Michael Leibrock, DTCC’s Chief Systemic Risk Officer. “We have seen a steady increase in both attendance and participation at these roundtables, and the forum represents a valuable component of DTCC’s ongoing commitment to increase transparency with our members.”
Cyber attacks against financial services firms continue to increase in complexity, sophistication and persistence. Cyber risk is the top overall risk, with 22% of respondents citing it as the single biggest threat to the industry and 56% rating it a top five concern, according to the recent DTCC Risk Barometer. Financial services firms continue to make significant investments in cyber security defenses, including the launch of a number of industry-wide initiatives designed to mitigate the threat of cyber attacks.
Stephen Scharf, DTCC Managing Director and Chief Security Officer, stressed the importance of collaboration among industry stakeholders as a best practice to defend against cyber attacks. One example of that collaboration, he noted, is the Financial Services Analysis and Resiliency Center (FSARC). FSARC members work collaboratively with their industry partners and the U.S. Government to identify, analyze, assess and coordinate activities to mitigate the threats and risks of cyber attacks. DTCC joined the FSARC in December 2016.
Sharing cyber threat information can also reduce the risk for a cyber contagion to spread from a fourth party, which refers to the risk that as firms outsource functions to a third party vendors; those third party vendors may use their owns vendor and/or subcontractor for other tasks. Fourth party risks could be concentrated in vendors and geographies and thus a cyber attack could quickly propagate risk across a less diversified landscape.
Even the best cyber defenses can be breached. That is one reason why the financial services sector launched Sheltered Harbor, an initiative designed to enhance resiliency and provide enhanced protections for financial institutions’ customer accounts and data, and prevent contagion that could be associated by a cyber attack on a retail banking institution. Sheltered Harbor, Scharf explained, enables financial institutions to securely store and rapidly re-constitute account information, making it available to customers, whether through a service provider or another financial institution, if an institution appears unable to recover from a cyber incident in a timely fashion.
2017 Market Outlook
Economic and monetary policy trends in the U.S. could shift as the Federal Open Market Committee (FOMC) and Fed Board are poised to change significantly in the next 18 months, with multiple governor spots vacant. Further, the global financial market place remains unsettled with a variety of geopolitical risks, including the Brexit process and upcoming elections in Europe impact markets in the year ahead.
Dan McElligott, representing DTCC’s Market Analytics and Counterparty Credit Risk teams, noted that U.S. President Trump and incoming U.S. Treasury Secretary Mnuchin are inclined change components of Dodd-Frank. Some of these potential changes, McElligott said, include exempting smaller banks from some of the Dodd-Frank requirements, modifying the Volcker Rule and restructuring the Consumer Financial Protection Bureau (CFPB).
Financial services firms have made changes in their operating models to comply with these requirements over the past several years and efforts to roll them back does introduce some uncertainty to market participants.
DTCC Risk Management Services
Risk management is at the center of DTCC’s responsibilities and has been since the organization's inception more than 40 years ago. Today, DTCC continues to invest in and develop new tools designed to further reduce risk across the financial industry.
Some of those tools are DTCC’s Risk Data Warehouse, Portal and Risk Reporting capability. Gregory Kalina, Managing Director from DTCC’s Risk Technology Practice, explained the service’s existing functionality that is available within DTCC’s Risk Technology Portal as well some of the upcoming developments and capabilities that may be available for clients in the foreseeable future.
DTCC’s Risk Data Warehouse and Client Portal are being designed to show current client exposure to DTCC as well as potentially offer optional premium data services. When complete, it will offer a one-stop central access to National Securities Clearing Corporation (NSCC), The Depository Trust Company (DTC) and Fixed Income Clearing Corporation (FICC) risk management tools, including margin requirements, portfolio detail, and client calculator functionality.
Upcoming Systemic Risk Events
The Q2 DTCC Systemic Risk Roundtable is scheduled Monday June 19th and will be hosted at DTCC’s offices in Jersey City, NJ. Invitations will be sent shortly with the agenda focused on the following topics: Geopolitical Risk, T+2 Initiative to Shorten the Settlement Cycle, and a review of the results of the recently completed Q1 2017 DTCC Systemic Risk Barometer Survey.
For more information, including requests to attend, please contact Paul Jordan, DTCC Director, Systemic Risk Office, at [email protected].