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In With the New Rules for Implementing New Technologies for Market Infrastructure

By Mark Wetjen, DTCC Managing Director & Head of Global Public Policy | September 17, 2019

In With the New: Rules for Implementing New Technologies for Market Infrastructure - Mark Wetjen, DTCC Head of Global Public Policy
Mark Wetjen, DTCC Head of Global Public Policy

Any discussion pertaining to the implementation of new technologies in the case of financial market infrastructures (FMIs) must focus on the question of what is the underlying purpose of deploying a new technology tool. An incorrect answer to this question will set any implementation project off onto the wrong course. The correct answer will result from carefully considering the needs of customers and key stakeholders, which for FMIs, also includes regulatory supervisors and policymakers. There must be a rational basis behind the use of the technology, which will be informed by a keen focus on delivering on clients’ and stakeholders’ expectations.

Once a sound decision to implement a client solution using a new tool is made, in the case of FMIs, there are several key considerations to keep in mind. FMIs arguably are held to the highest of regulatory standards; therefore, the first consideration is that a measured, incremental approach must be followed. A narrow use case first must be identified and pursued, with client and stakeholder needs driving the assessment, and implementation should move forward only if the initial stage is successful. There are trade-offs to this approach, but from a safety-and-soundness perspective, an FMI must accept the conditions and proceed accordingly if it is to manage its responsibilities successfully. For example, one trade-off is that the implementation timeline will likely be longer than it might be for other firms with fewer regulatory responsibilities.

The second consideration is that collaboration with key stakeholders must drive the process. Successful implementation of new technology by FMIs requires key industry players, including policymakers, to understand how new technology implementations meet not just the needs of clients, but the interests of the overall industry and, indeed, the public. One method to achieve this is reaching a mutual understanding of how existing public policies and their implementing regulations will be met. Another is to agree on how to adjust regulations if necessary, in the cases where existing regulations may not squarely apply to a new technology implementation. With this in mind, regulators and policymakers are consulting at a global level, through standard-setting bodies (SSBs) such as the Financial Stability Board (FSB) and IOSCO to gain a greater understanding of how new technologies such as DLT, robotic process automation, machine learning and big data can improve the functioning of financial markets without risking their safety. Best practice guidelines are useful tools to guide the collaboration process, and cloud technology is a good example. Due to the new levels of robustness and sophistication of cloud technology, FMIs – such as DTCC – continue to expand use of the cloud across external services and applications, and point to and follow best practices in the implementation process, as well as in discussions with stakeholders.

Finally, it is important to acknowledge that while many different types of technology tools are frequently categorized as emerging technologies, the fact is that some are more mature than others, and today, some of the newest and least-tested of these tools will likely struggle in the short term to deliver on the requirements that FMIs face.

Meanwhile, the industry must address challenges now. While today’s financial infrastructure is highly resilient, the future beckons, and pressures on clients remain. These conditions demand that FMIs begin the journey today to tomorrow’s infrastructure, which inevitably will leverage innovative technology. New technologies are transforming parts of financial services and continue to change the way in which certain areas of post trade infrastructure operate. Over the past decade, FMIs have successfully achieved increased levels of efficiency, speed and cost reduction using technology. It is our view that in ten years’ time, FMIs will have been further transformed by new technologies, driven by a combination of established and newer technologies. While this development should be encouraged, it is critical that in the case of FMIs these technologies are implemented following a strict framework of prudence, collaboration with policymakers, best practice guidelines and at the appropriate time of their maturation.

This article was originally published in Eurofi Magazine.