Regulation is driving change, especially in the collateral management space, according to a panellist at this year’s Securities Lending Times Securities Finance Technology Symposium.
Discussing collateral management and optimisation, a member of the collateral panel stated: “We shouldn’t underestimate the regulatory change that’s happening” and cited the 2008 financial crisis as a major catalyst for that change.
The panel suggested that they are seeing a lot of firms creating innovative services because of underlying drivers. One panellist noted that there has been an increase in demand for cross-product systems.
A panellist said: “The behaviour has changed significantly in the last decade, in terms of the net result of reduction in financial resources—the sell side especially have to do more with less, regulatory adherence is number one priority. The bottom line is cost.”
Another panellist stated: “They [the securities lending industry] have, I believe, now decided on the whole what their business model is.”
He added that this was especially the case when considering life post-Basel III.
He also noted that the buy-side has, in recent times, been impacted by a wave of regulations, but in terms of asset requirements, he said “it’s not just one particular area, several were impacted by the recent wave of regulations”.
According to the panellist, although the industry has been severely affected by this level of regulation, there has been a lot more collaboration with vendors over the last year fews.
Another panellist cited that from a securities lending perspective, there is a lack of investment in the over-the-counter environment.
However, the panellist noted that attitudes are changing because of regulations surrounding collateral and the need to reduce the cost of changing. He explained: “There’s not a weakness in changing.”
Collaboration, which has been a big topic of conversation in recent times, was also discussed by the panel. According to one member of the panel, if companies collaborate together they will likely become better solution providers, covering all areas.
One panellist predicted an increase in companies investigating and exploring blockchain. However, he said: “I’m sitting on the fence with blockchain, it could be over used as a solution looking for a problem.”
Another predicted that machine learning will also have a part to play in the future of collateral optimisation, however, explained that with an ever-changing regulatory environment you never know what might happen next.
He concluded: “Regulation is the catalyst, but technology solutions will aid that.”
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