Tackling Dodd-Frank (and other regulations)
“ It is too expensive and too risky to try and follow the do-it-yourself route.”
Global Head of Business Development, Financial Institutions and Brokers, SGSS
Momentum has previously addressed the question of how markets around the world continue to adjust to the dramatically changed economic circumstances of recent years.
In this latest issue, Guillaume Heraud, Global Head of Business Development, Financial Institutions and Brokers at SGSS, argues that it is hardly possible for a small to mid-tier institution acting on its own to become compliant with the requirements of the Dodd-Frank act and other impending legislation and regulation in the US and Europe. “For anyone who does not already have unquestioned capabilities in OTC derivatives valuation and trade support, custody and collateral management, it is too expensive and too risky to try and follow the do-it-yourself route,” he says.
“It is hardly possible for a small to mid-tier institution acting on its own to become compliant with the requirements of the Dodd-Frank act and other impending legislation and regulation.”
He points in particular to the requirements to clear OTC derivatives centrally. This will have significant implications for collateral management, introducing daily resetting, marking to market and the posting of variable capital. Clients will find themselves faced with totally new demands that will challenge their ability to manage collateral in a cost-effective and timely manner while addressing the threats of concentration risk. The importance of the ability to combine collateral optimisation and transformation and direct access to the clearing process will come to the fore to ensure that the right collateral is in the right place at the right time.
SGSS can minimise the operational impact of this measure, by acting as the customer's agent and managing all the complexity of the new regulatory obligations, including regulatory reporting. Says Guillaume Heraud. “It is not possible to keep parts of the processing chain in-house and find an external solution for the rest; this would be inefficient and quite possibly dangerous. It is a question of managing the clearing process from start to finish; this requires access to the right affirmation platforms and central counterparties, large investments in automation, skill and human resources, qualities which are beyond the reach of all but the very biggest investors. The alternative to appointing an external provider involves unacceptable levels of operational and counterparty risk; this could lead to costly errors, and missed investment opportunities elsewhere.”
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