NeMa: post-crisis Europe 'optimistic'
11 June 2015 Athens
Image: Shutterstock
Regulations may have made the business of banks and insurers more complicated, but reform was necessary and things may be looking up, according to a keynote speaker at the NeMa Europe conference in Athens.
Before the financial crisis, clearing of derivatives was considered to be a secondary function. Now, focus has turned to central counterparties, central securities depositories, exchanges and trade repositories.
The change in market infrastructure means that banks and insurers have become more responsible for risk management, although, the speaker explained, it is banks that have taken the biggest hit to reputation.
He pointed out that in the new landscape, custodians facing problems come up against stricter liability and a reverse burden of proof. In the past, it was up to the client to prove that a custodian had done wrong. It now down to the custodian to prove that it has done everything right—a much harder feat.
This “necessarily increases the risk” of having to pay out, which leads to additional costs for the custodian, according to the speaker.
The speaker also commented on the increased importance of big data, saying that in the modern industry it is not just about the data, but about the results and how they are used.
He said it is important to identify counterparties and “understand the underlying structures”, saying it was something they may have filed to do in the past.
The speaker concluded that after the crisis it was clear that something had to be done, and some consequences, while not unintended, came as secondary burdens. “The risks have changed,” he said, from operational to statutory risk.
While there are still improvements to be made to the likes of cross-border operations, shadow banking, and working out who should have responsibility for paying for changes, the industry has merely had an eight-year gap in development, and that ultimately, the outlook is now “optimistic”.
Before the financial crisis, clearing of derivatives was considered to be a secondary function. Now, focus has turned to central counterparties, central securities depositories, exchanges and trade repositories.
The change in market infrastructure means that banks and insurers have become more responsible for risk management, although, the speaker explained, it is banks that have taken the biggest hit to reputation.
He pointed out that in the new landscape, custodians facing problems come up against stricter liability and a reverse burden of proof. In the past, it was up to the client to prove that a custodian had done wrong. It now down to the custodian to prove that it has done everything right—a much harder feat.
This “necessarily increases the risk” of having to pay out, which leads to additional costs for the custodian, according to the speaker.
The speaker also commented on the increased importance of big data, saying that in the modern industry it is not just about the data, but about the results and how they are used.
He said it is important to identify counterparties and “understand the underlying structures”, saying it was something they may have filed to do in the past.
The speaker concluded that after the crisis it was clear that something had to be done, and some consequences, while not unintended, came as secondary burdens. “The risks have changed,” he said, from operational to statutory risk.
While there are still improvements to be made to the likes of cross-border operations, shadow banking, and working out who should have responsibility for paying for changes, the industry has merely had an eight-year gap in development, and that ultimately, the outlook is now “optimistic”.
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