Jeffrey Leckstein, head of Australia at Bloomberg, explains how technology is improving transparency for investors but also how regulators are using it for accountability.
As global growth converges towards a slower speed, more funds in Australia are utilising derivatives to achieve investment objectives and manage exposures, leaving trustees and boards increasingly concerned about the associated risks. Many realise that without a strong risk and compliance culture, risk monitoring and control systems in place, information and communication gaps between investment teams and stakeholders could be costly.
Trustees need greater operational transparency and access to detailed information about investment positions and practices and so do regulators.
In the wake of the global financial crisis, regulators have used technology to get a clearer and more detailed view of risk too.
Since the GFC, technology has affirmed its value and role in financial services, for all traders, exchanges, portfolio managers, compliance, custodians, investors, investment boards, advisers and, not least, regulators.
Financial technology is now at an interesting juncture. Disruptive and integrative technologies are pushing new boundaries, making underlying frameworks stronger, more efficient and less vulnerable to risk.
But as investment strategies, tools and market structures become more complex, regulatory frameworks and reporting regimes are likewise becoming stronger.
For instance, 13 April 2015 marked the commencement of the third phase (3A) of ASIC’s trade reporting regime.
From this date, certain reporting entities including Authorized Deposit-Taking Institutions, holders of an Australian Financial Services License and clearing and settlement facilities that have at least A$5 billion in gross notional outstanding reportable OTC positions are required to report interest rate and credit derivatives transactions to the Depository Trust & Clearing Corporation’s global trade repository – the first and currently sole trade repository in Australia.
The second tranche of phase three (3B), will commence on 12 October 2015, bringing other asset classes under the reporting umbrella (equities, FX and commodities), as well as institutions holding less than $A5 billion in outstanding positions in interest rate and credit derivatives.
This third and final phase reflects how technology is being applied across the entire trade lifecycle, from execution to post-trade clearing and reporting.
Navigating an ever increasing web of compliance, and preparing for impending regulations including Know Your Client and Anti-Money Laundering is again having an impact on technology.
Silos are increasingly being replaced with integrated systems which provide a complete ‘look through’ of risk across the asset spectrum as well as connectivity to regulatory regimes and are looking to firms such as ours to support them in that.
More than five years have passed since the Financial Stability Board (FSB) was established with a broadened mandate to promote financial stability across global financial markets. As the global regulatory jigsaw continues to takes shape, compliance and cost will remain at the forefront of evolving risk management practices. With the right technologies and reports in place, trustees, regulators and investors can view and manage risk from not only a reactive but also an anticipatory perspective.