Capital Markets have been hit by a tidal wave of regulations in recent years.
This includes, but is not limited to, domains such as Collateral, Post-Trade, Market Risk and more.
The good news is some key regulatory monsters and market initiatives are now moving into our rear view mirror, including mandatory OTC clearing, Phase 6 UMR, LIBOR transition, SFTR and CSDR.
But we know the regulatory engine never stops.
So with one mountain climbed, what's next?
SEC US T+1 settlement is a major regulation with industry-wide impact, due live in May 2024. For many firms, this will require front-to-back infrastructure uplift to meet the earlier settlement cut-offs, hampered by legacy settlement technology, data and processes.
Likewise SEC 10c-1 will require major data and reporting uplift across Securities Finance products, acting as the US equivalent to the now-live European SFTR rules.
A new wave of regulations is also being rolled out to formalize evolving domains and new technology, such as Sustainability and Digital (crypto assets, tokenization, DLT and blockchain usage, etc).
Not forgetting the ever-increasing securities settlement penalties imposed by CSDR, which are triggering remediation work across the industry, nor the latest round of capital requirements via the pending Basel III reform regs. Even increased US Treasury Clearing is now on the agenda, which threatens to be another regulatory behemoth.
The upside? We are all familiar with the message that these regulations will further mitigate risk and increase transparency across the industry.
Unfortunately the downsides are often more visible in the short-term, including an extremely heavy compliance burden and an ever-higher total cost base for firms, further deteriorating profits each year.
Post-trade regulation - An opportunity
With so much parallel regulation impacting the post-trade operating model, the burden placed on in-scope firms cannot be underestimated.
However, there is a more positive message for those who prefer 'glass half full'.
Firms have now been presented with a natural opportunity to deliver a more strategic post-trade target operating model, focused on new technology, strong data, process scalability and long-term profit gains.
For many firms this period will be the major, single regulatory window to uplift and future-proof infrastructure for years to come.
Often, firms simply don’t have the capacity, and/or the expertise, to quickly break down the mass of new regulations, then define and execute strategic solutions and target operating models.
A powerful combination of headcount cuts, limited transformation resources and budget constraints is too much for many firms.
The quick fix dilemma
As such, the temptation for firms is to compromise with their compliance objectives. Firms can be tempted to ditch long-term vision strategy and focus on ‘getting over the line’ tactically.
We've all been there.
But we all know the risks.
The worst outcome of such an approach is for compliance to be put at risk, based on the unsuitability of ‘sticky plaster’ solutions and manual processes. This risk is growing in the current climate, bearing in mind the long-term market volatility and stress scenarios that are driving higher-than-usual volumes.
Even if compliance is delivered in the short-term, we know that can often prove a false dawn as tactical operating models are quickly found out by growing volumes and new scenarios.
The end result? Urgent remediation of a tactical operating model to protect compliance, which is often far more expensive than delivering a more strategic target operating model in the first. A scenario that's unlikely to appease Front Office, as post-trade infrastructure becomes a drag on the profit base.
At Tonic, our USP is that we are genuinely expertise-led. Our practitioners really have been there and done it.
Tonic's specialists hold deep experience in the successful delivery of a wide array of regulations and target operating models, across dealer banks, buy-side firms, custodians and service providers.
There aren’t many scenarios that we have not seen, or learnt from.
But what does that expertise actually mean?
Tonic's expertise covers Domain, Transformation, Regulation and Vendor streams.
It means we come equipped with the tools to define and deliver the right solutions, quickly.
It means we're not learning on the job. It means we're not continually extracting information from your SMEs, only to play it straight back to them.
In turn it means speed. It also means agility.
When combined with our client focus, it means a superior service model and far better client outcomes.
At Tonic we offer a flexible approach to our regulatory compliance services, driven by the needs of our clients.
We do this by providing a modular menu of analysis, strategy, definition and delivery services. The key compliance modules that we support are shown below.
We can either deliver specific service modules or lead the full end-to-end delivery, as required.
Come speak to us for an informal chat, to find out more.
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