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DTCC Connection

By Mark Wetjen, DTCC Managing Director and Head of Global Public Policy | November 22, 2017

The Future of Globalization and Financial Market Infrastructures
Mark Wetjen, DTCC Managing Director and Head of Global Public Policy

In his Harvard Business Review article, “The Financial Industry Needs to Start Planning for the Next 50 Years, Not the Next Five,” Anthemis CEO Nadeem Shaikh points to a widening gap between technology and organizational progress that, if left unaddressed, could have profound consequences for the entire industry. Recognizing that there always will be some practical limitations to such an approach for commercial organizations with many stakeholders, the advice is nonetheless instructive.

As fintech innovations, such as distributed ledgers, artificial intelligence, robotics and cloud computing, transform how financial services are provisioned, the need for stakeholder collaboration to ensure alignment of approach and policies increases. Meanwhile, globalization continues apace, in many cases abetted by technological advances, notwithstanding interruptions caused by reactions of the public that lead to political disruption. The trend is unstoppable.

Despite some concern that the U.S. might become more isolationist, America continues to demonstrate strong leadership on issues related to capital markets – and this must be absolutely encouraged. As home to the largest and deepest markets in the world, American engagement in the global dialogue about these matters is crucial. The U.S. also plays a critical role in the leadership of standard-setting bodies (SSBs), including the Basel Committee, the Financial Stability Board and IOSCO. These organizations serve an important role in convening the appropriate dialogues related to minimum regulatory standards and harmonizing global requirements implemented around the world. These bodies have a clear responsibility to hear concerns from a wide range of stakeholders, and to advance sound policies and standards.

For example, there can be tremendous upsides when SSBs forge consensus before consultations are released to a wider audience – acting in a timely manner to ensure that policies reflect the current state of the global marketplace. Working too far ahead of the curve may result in undesirable outcomes. Jurisdictions can more easily choose not to adopt requirements that might lead to short-term gains, ignoring longer-term and far-reaching risks that could devastate national economies. Standard setting by policymakers should also not occur too soon before technologies adequately mature, and thus policy considerations sufficiently ripen, increasing the risks that the technology’s evolution becomes needlessly warped. To quote Mark Carney, Governor of the Bank of England, “the challenge for policymakers is to ensure that fintech develops in a way that maximizes the opportunities and minimizes the risks for society.”

Similarly, standards are only as good as their ability to bring all parties together. ISO 20022 is an example of market infrastructures, financial institutions, regulators and SSBs collaborating to address the future needs of the industry. This standard provides the global financial industry a common way of communicating while protecting the framework from future syntax changes. The adoption of ISO 20022 has streamlined cross-border communication between financial institutions, their clients and domestic market infrastructures involved in processing their financial transactions.

This article was originally published in Traders Magazine.