Regulations compounding collateral shortfall
28 September 2016 Geneva
Image: Shutterstock
The transparency requirement of regulations such as Dodd-Frank and the European Markets Infrastructure Regulation are contributing to the market's collateral shortfall, according to respondents of an independent survey commissioned by SIX Securities Services.
Half the financial institutions questioned argued that these regulations are actually having the opposite of their intended effect by adding to market instability.
The survey also revealed industry concerns the blurring of custody and investment business lines among global systemically important banks (G-SIBs) can create a “high level of risk with regard to asset safety”.
Almost two thirds (64 percent) of respondents admitted to harbouring concerns that that agent banks have both custody and investment business lines.
This fear was particularly acute with regards to G-SIBs, with 80 percent of respondents acknowledging it as an issue for market stability.
The survey also showed that 32 percent of those questioned believe that the pressure to ensure and prove asset safety comes primarily from ‘own balance sheet liability’, followed by 26 percent who point to the regulators and 26 percent who point to institutional investors.
The remaining 16 percent see pressure coming from the clients of these investors, such as pension funds and insurance companies.
Thomas Zeeb, division CEO SIX Securities Services commented: “These results are a clear representation of how seriously our industry is taking asset safety – clients are conflicted by the need to reduce costs, possibly through outsourcing services, with questions being raised around the prudence of being so reliant on service providers.”
“As a Financial Market Infrastructure, it is our role to address these issues and provide safe, secure and robust solutions to our clients.”
Half the financial institutions questioned argued that these regulations are actually having the opposite of their intended effect by adding to market instability.
The survey also revealed industry concerns the blurring of custody and investment business lines among global systemically important banks (G-SIBs) can create a “high level of risk with regard to asset safety”.
Almost two thirds (64 percent) of respondents admitted to harbouring concerns that that agent banks have both custody and investment business lines.
This fear was particularly acute with regards to G-SIBs, with 80 percent of respondents acknowledging it as an issue for market stability.
The survey also showed that 32 percent of those questioned believe that the pressure to ensure and prove asset safety comes primarily from ‘own balance sheet liability’, followed by 26 percent who point to the regulators and 26 percent who point to institutional investors.
The remaining 16 percent see pressure coming from the clients of these investors, such as pension funds and insurance companies.
Thomas Zeeb, division CEO SIX Securities Services commented: “These results are a clear representation of how seriously our industry is taking asset safety – clients are conflicted by the need to reduce costs, possibly through outsourcing services, with questions being raised around the prudence of being so reliant on service providers.”
“As a Financial Market Infrastructure, it is our role to address these issues and provide safe, secure and robust solutions to our clients.”
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