How to Avoid Digging Up the Road More Than Once

PRESS RELEASE FROM THE FINANCIAL SERVICES CLUB, 5th March 2013

An industry group
supported by the Financial Services Club is harnessing the power of
‘crowdsourcing’ and social networks to generate a list of the regulatory issues
most likely to cause firms to have to “dig up the road more than once”. 

The imminent split of the UK regulator into PRA and FCA
means yet more urgent actions for overloaded compliance departments. 
Working out how to face off against the new organisations will be a challenge
in itself.  While the necessity to ‘play the game’ and make optimal
decisions in response to regulation is increasing, the subtleties of how to do
it are increasing in complexity.  Even small things can result in
significant costs across the larger organisations  -  the requirement
to inform retail customers about who regulates the firm will change not only
the wording (FSA will no longer exist) but also the rules as to when it will be
applied (PRA, FCA or both, and for what) across call centres, sales people,
documentation, channel, systems that generate letters and so on.

These changes will not help the firms to service their
clients better nor increase their competitiveness.  More than ever,
financial services firms need to avoid unnecessary costs and need compliance
and regulatory departments to lift their heads from immediate issues and see
the opportunities in the medium term.

Chris Skinner, CEO of the Financial Services Club, sees this
across his membership: “The opportunity is to see the implications of the
changes across the various participants in the industry, and across
regulations, and make strategic investments to limit the amount of expenditure
over the long term.”

Examples of
common challenges across more than one regulation are already emerging. 
For example counterparties must identify what they are to each other in a
relationship and this will be a similar procedure across many regulations,
perhaps repeated many times if not done thoughtfully.  There are
similarities in the area of threshold declarations, which affect how a
counterparty is classified, and risk classifications.  Under the European
Market Infrastructure Regulation (EMIR), UCITS funds and their servicers have
to agree a definition of key events in order to be able to establish whether
thresholds have been met, e.g. what constitutes a completed confirmation, and
similar triggers will apply to many upcoming regulations.  New reporting
is required for many regulations, such as where Dodd-Frank and EMIR have
similarities for OTC derivatives, although the regulations also have many
differences.

The Clearing & Settlement Working Group (CAS-WG), in
London, is trying to help the industry deal with this situation better by
building an interactive model of the participants and a ‘test-lab’ to consider
the impacts across multiple regulations.

The sheer volume and complexity of regulation, proposed and
existing, makes the identification and assessment of cross-regulation
opportunities difficult.  A 2011 effort by ISITC Europe to create a
summary of upcoming regulations included 22 regulatory initiatives and ran to
131 pages.  Few people would be capable of absorbing this even at this
summarised level of detail.

In response to the complexity problem the CAS-WG, supported
by the Financial Services Club, is harnessing the power of ‘crowdsourcing’ and
social networks to generate a list of the issues most likely to cause firms to
have to “dig up the road more than once”.  The CAS-WG subject-groups will
then assess these for their impact and publish recommendations as to where
firms may be best to focus their attention in order to save money in the long
term.

Greg Caldwell, chairman of the Regulation subject-group,
said “It is very difficult for any individual to have the depth and breadth of
knowledge to work across so many disparate regulations such as AIFMD, MiFID and
CRD.  By bringing people together from business, compliance, legal,
specialist consulting, regulators, operations and technology and inviting
contributions from far and wide we can work in a way that would otherwise be
impossible.”

As part of the ‘crowdsourcing’ initiative CAS-WG is
launching a competition to solicit proposals from the industry for what are
playfully termed Road-Works Issues or RWIs.  The long-list of RWIs will be
filtered and ranked against a set of criteria and the top ones investigated by
the CAS-WG ‘test-lab’.

The Financial Services Club is offering a free membership
worth £500 for the 100^th RWI submitted.  Please submit your
suggestions to kamila@fsclub.co.uk.

For more information contact Greg Caldwell via greg@gregorycaldwell.com