The current pace of technological innovation and change in the financial industry is unprecedented. While technology promises to deliver greater efficiency and cost savings, the coordination required on a global scale to realize the potential of innovation is a challenge. DTCC’s 2017 European Client Forum, which welcomed industry leaders for a half-day of discussions around the latest fintech innovations, focused on these unique challenges in two panel sessions.
Panelists left to right: Thomas Zeeb, Edwin Schooling Latter, Andrew Gray, Scott O’Malia, Andrew Douglas
New Perspectives on Financial Regulation – A Retreat from Globalization?
Moderated by Andrew Gray, DTCC Managing Director, Group Chief Risk Officer, the first panel explored a possible retreat from globalization in the financial services industry, the increasing costs of regulation and the need for standardization.
Panel participants were Andrew Douglas, DTCC Managing Director, Government Relations and CEO of DTCC’s European Trade Repository; Scott O’Malia, CEO, International Swaps and Derivatives Association (ISDA); Edwin Schooling Latter, Head of Markets Policy Department, FCA; and Thomas Zeeb, CEO, SIX Securities Services & ISSA Chairman.
While there has been some discussion in the financial services industry about limiting global regulatory forums and a focus on local and regional regulations, international standard-setting bodies continue to forge ahead with global guidelines. Panelists agreed that while there are challenges in implementing global rules across multiple jurisdictions, there continues to be progress in the push for globalization.
“We have very strong incentives to cooperate and collaborate with our counterparts in other jurisdictions,” Latter said. “I feel optimistic that cooperation across the globe will continue.”
O’Malia spoke from the ISDA perspective, and how it supports globalization.
“We wake up every day thinking about how we are going to support the international harmonization of rules at a global level,” he said, adding that data sharing across multiple jurisdictions continues to be a challenge, and commended DTCC for providing solutions for better consistency.
“The difficulty is that the implementation is carried out at a national level,” Zeeb said. “Therefore, the interpretation is also subtly different in almost all of the individual markets in Europe—this effectively defeats the purpose of harmonization, or at the very least undermines it. Greater engagement with national entities early in the process could substantially overcome this hurdle.”
Douglas explained that a large part of foreign asset ownership seems to be moving away from Europe and the U.S. and opting for Asian institutions instead. He shared some data to support his theory, revealing that since 2007, the foreign claims of European banks have fallen about $14 trillion, and U.S. bank exposure to foreign claims has remained steady around $3 trillion.
“In the same period,” he said, “foreign asset ownership has increased from $100 trillion to $130 trillion and cross-border bond ownership had gone up from 18 percent to 31 percent—a gap that mostly Asian institutions are filling. The point here is that globalization, if you measure it by cross-border bond ownership and investment, has continued to increase—but not with the support of the western banking system”
The discussion also touched on the growing cost of regulation. Since the financial crisis, a myriad of new regulations has been implemented to try and prevent another event, but many in the industry feel strongly that it’s time to re-look at the rules to ensure they still make sense. Concern over the growing amount of time and money required to comply with regulations was a sentiment shared by the panelists who agreed that the greater the similarities in regulation across multiple jurisdictions, the less the cost and greater the ease of doing business.
Panelists left to right: Dr. Lee Braine, Veronica Augustsson, Gavin Wells, Robert Palatnick
Fintech: Friend or Foe?
Robert Palatnick, DTCC Managing Director and Chief Technology Architect, moderated the Fintech: Friend or Foe? Finding the Right Path to Innovation panel, during which panelists looked ahead and offered their views on how to implement fintech in the financial services market.
Panel participants were Veronica Augustsson, CEO, Cinnober Financial Technology; Dr. Lee Braine, Investment Bank CTO Office, Barclays; and Gavin Wells, Head of Europe, Digital Asset.
On the topic of fintech, there appear to be two schools of thought. The first, which all the panelists agreed with, is that fintech should be incorporated into the current framework of the financial industry through careful collaboration and coordination. The second is that banks and the existing system are no longer necessary and should be replaced entirely with this new transformative technology. A major challenge to the latter view is that, when it comes to financial markets, people want a certain level of stability and regulation, which the current framework provides.
Panelists had mixed feelings on the topic of fintech regulation.
“If a new entrant tries to provide services that have been regulated, and for which customers want to have some sense of safety, then they should expect to be regulated in the same way as current providers to give that same sense of security to us, the consumers,” Wells said.
Augustsson agreed on the importance of regulation, but questioned the approach.
“Regulation exists in order to have a safe and orderly market,” Augustsson said. “But you should regulate the service, not the technology.”
In some cases, technology companies are also trying to become financial services companies, further complicating the matter. Braine acknowledged this, but highlighted that if a service provider becomes a material piece of a systemically important environment, then it too should be considered from a financial stability perspective.
Panelists agreed that the rapid pace of fintech development dictates the need for more industry collaboration, but were divided about the timelines for creating standards in the fintech space. While Wells noted that it was early for standards due to the lack of a relevant scale, Augustsson and Braine shared their desire to see standards develop soon to help reduce inappropriate variation.
“If we’re going to simplify the operating platforms across the industry, we need to radically reduce the variation,” Braine said. “So how do we go about removing that variation and reducing our cost? At some point, we need standards to be deployed.”