The Futures Industry Association’s (FIA’s) International Derivatives Expo (IDX), held this year in London June 3-5, featured Mark Wetjen, DTCC Managing Director and Head of Global Public Policy, as a panelist in the session entitled Forward Thinking: the Future Perfect? Here, Wetjen shares three key takeaways on regulation, technology and the rise of socially-responsible investing.
Was Financial Reform Worth It?
Dodd-Frank in the U.S. and MiFID II in Europe have sparked dramatic changes across the industry over the past decade. The implementation of new requirements on trading and reporting, for instance, have significantly increased compliance costs, leading many to question if the gains in market transparency and stability outweigh the financial impact of the rules.
Overall, I believe they do because firms and the industry as a whole are more resilient than they were in 2008. Inevitably, there will be stresses within capital markets or the banking system, so being able to absorb and recover from them quickly to continue providing services is essential. When viewing financial reform legislation through this lens, lawmakers and regulators were right to implement rules that required the raising of loss-absorbing capital, and incentivized risk reduction and resiliency.
Digital Transformation Will Shape Future Market Structure
As new fintech innovations continue to gain traction, how firms direct investment dollars in these technologies, which ones they prioritize and how they integrate them into their operations will shape market structure in the future.
As we’ve seen over the past three to four years, fintech start-ups are proliferating at a rapid pace. In some cases, they’re competing head-to-head with established financial institutions, but in other instances, they’re acting as partners or solutions providers.
As a priority, the industry needs to lead the digital transformation of the marketplace by developing solutions to address key challenges. Identifying these issues requires a keen understanding of, and finely tuned ear for, the concerns and demands of clients. New tools might come and go, but understanding which ones to leverage should be determined by how client – current or prospective ones – needs can be best met. Examples include managing multi-jurisdictional regulatory requirements or adapting to a zero-tolerance compliance environment. Choosing the right technologies and the best fintech providers to help meet these and other challenges, along with seamlessly integrating multiple applications in a cohesive way, are all important tasks for firms in the coming years.
Keep An Eye on ESG Investing
The ESG agenda – that is, attention to the environmental, social and governance impacts of the underlying assets investors invest in – is becoming a higher priority in the U.K. and Europe, but it remains somewhat on the periphery among policymakers in the U.S. This agenda nonetheless should be closely watched in the U.S. today because it could impact the products and services of U.S. financial firms with EU customers today, and could quickly gain momentum tomorrow in the U.S., especially during a Presidential election cycle.
To be sure, the current Congress has demonstrated an interest in addressing socially-related aspects of the industry. For example, U.S. Rep. Maxine Waters, Chair of the House Financial Services Committee, is tackling the issue of diversity, including creating a subcommittee on the matter. Although it’s still early days, her focus is starting to have an impact, and the expectation is that this will remain an area of interest for lawmakers.
At a time of such rapid change for the industry, firms will need to become even more nimble to address new priorities and remain engaged with policymakers and other key stakeholders to help shape the legislative and regulatory agendas across all jurisdictions where they operate.