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Excessive regulation is restricting the financial services industry

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Regulation with painful deadlines and a lack of technical clarity are holding back technology innovation within the financial services industry. The amount of resource that firms need to commit to meet unrealistic deadlines means that they endanger their own ongoing ‘BAU’ (Business as Usual) as well as virtually halting new initiatives while the ‘has to be done’ compliance work is tackled.

The basic issue with regulation is that it tends to be politically driven and thus has no consideration for how firms may need to adapt or replace their technology to adhere to it. The other major frustration is that the detailed requirements that may require technology code or configuration changes is never easy to extricate from the pages and pages of legally scribed jargon. These documents are often very vague, especially in the early stages of the regulatory process – thus limiting the suppliers’ opportunity to develop in line with the regulation. A case in point is the ESTA regulations around transaction reporting for EMIR. The regulations lacked sufficient detail and many working groups and firms submitted questions to try and get clarity around them. Systems, being in general logic driven, need crystal clear clarity to define rules and / or parameters to make them work. The regulations lacked the specific detail to enable this. Rounds of Q&A had to be submitted and answered before an agreed understanding could be reached.

In the case of the regulations around reporting historical trades to trade repositories, the ESTA announcement late last year completely moved the goalposts around the date by which trades need to be reported. Instead of firms having a further three months to report open positions, they now have to report them as of the 12th February 2014 – i.e. at the same time as when the shift to ongoing trade reporting comes in. The fact that ESTA then needed to clarify their wording again a few days later is an illustration of the problem here. How can any technology solution be coded based on a statement that cannot be interpreted consistently across the industry?

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