New York, NY, March 27, 2014 - Despite an apparent ease in fears of a systemic risk event happening in the next 12 months, a recent survey conducted by The Depository Trust & Clearing Corporation (DTCC) revealed that a vast majority of financial firms have increased spending on systemic risk mitigation.
The DTCC Systemic Risk Barometer, a newly branded survey now in its second year, was launched by DTCC to assess and measure the financial industry’s sentiment on significant and emerging trends that impact the safety, resiliency and continued sustainability of the global financial system. The Barometer analyzed the information provided by 218 respondents – up from 80 in 2013 – comprising DTCC clients, including broker/dealers, banks, service bureaus, mutual fund companies, hedge funds and insurance companies. This year, the survey was further extended to regulators, academics and members of research organizations globally. Click here for The DTCC Systemic Risk Barometer Summary Report.
Just 9% of this year’s survey respondents, compared to about 37% in 2013, said they believed the occurrence of a high-impact market event in the next year to be “Likely.”
“Even though concerns about a near-term destabilizing market event appear to be abating, it is gratifying to see that this has apparently not translated into complacency and that the industry is becoming more diligent about protecting itself from such occurrences. Of the individuals we polled, 70% reported that their firms had committed more resources into systemic risk management activities over the past 12 months. This trend might indicate that systemic risk protection is becoming firmly embedded in corporate culture and standard business practices,” said Michael Leibrock, DTCC Chief Systemic Risk Officer.
Estimated budgets for systemic risk mitigation ranged from less than $1 million, for 36% of respondents; to $1 million-$5 million for 35%; to more than $5 million for 29%. No individuals reported that their firms had decreased spending.
In addition, 63% of respondents classified their firm’s ability to identify, assess and manage emerging risks as “Developing” and 33% ranked their firms as “Mature.”
Top Five Risks
Respondents once again ranked the Impact of New Regulations and Cyber Security as the first and second most relevant to their firms. The third, fourth and fifth most relevant risks were: a Significant Business Continuity Event; Disruption or Failure of a Key Market Participant; and a Major Compliance or Governance Event. These did not change materially from the 2013 survey.
When asked to rank the top risks relevant to the broader economy, the findings were similar, with Cyber Security first, followed by the Impact of New Regulations; a U.S. Recession; Disruption or Failure of a Key Market Participant; and Liquidity Risk – a choice added in the 2014 survey.
Commentary by respondents was particularly focused on the pressure on resources to address the Impact of New Regulations and Cyber Security, and included the following quotes:
- “Our biggest challenge is all the industry and regulatory initiatives and their close due dates. We are addressing internal processes and re-evaluating resources.”
- “With cyber security, regulation changes and liquidity issues, we are expending a large number of resources in technology, training, staffing and working with state and federal government on solutions.”
- “Working hard to ensure excess liquidity is available and actively monitoring counterparty risk and exposure levels. We are also spending significant time and energy trying to make sure we are complying with regulatory requirements, and further documenting and enhancing procedures to provide comfort to auditors and examiners.”
DTCC as Risk Mitigator
With three of its subsidiaries designated as Systemically Important Financial Market Utilities, DTCC is deeply committed to delivering risk mitigation solutions to meet the industry’s broad and evolving needs. Among some of the major initiatives the organization has launched or plays a significant role in are:
- participating in the industry-wide Quantum Dawn exercise to test the response to, resolution of and coordination for a wide-scale cyber attack;
- working with lawmakers globally to support policies that enhance information sharing and critical infrastructure protection and to develop a cyber security framework as directed under U.S. Executive Order 13636;
- drafting proposals to shorten the settlement cycle for U.S. cash securities transactions;
- developing a Margin Transit Utility – the industry’s first comprehensive, straight-through-processing (STP) solution to streamline the management and settlement of collateral;
- developing a central resource to collect and manage client reference data necessary to meet regulatory requirements and other business needs.
DTCC has operating facilities and data centers around the world and, through its subsidiaries, automates, centralizes, and standardizes the post-trade processing of financial transactions for thousands of institutions worldwide. With 40 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry, simplifying the complexities of clearance, settlement, asset servicing, global data management and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, derivatives, money market instruments, syndicated loans, mutual funds, alternative investment products, and insurance transactions. In 2012, DTCC’s subsidiaries processed securities transactions valued at approximately US$1.6 quadrillion. Its depository provides custody and asset servicing for securities issues from 131 countries and territories valued at US$37.2 trillion. DTCC’s global trade repositories record more than US$500 trillion in gross notional value of transactions made worldwide.