Regulation and international cooperation</h3> CLS joined the world’s Transaction Banking community in September at the 35th annual Sibos conference, held in Dubai. Sibos is a conference, exhibition and networking event organized by SWIFT which brings together 7,000 decision makers, topic experts, speakers and nearly 200 exhibitors to discuss and collectively shape the future of the financial industry. As one of the event sponsors, CLS had a prominent presence this year with an exhibition stand, keynote speakers and panelists.</p> Unsurprisingly, regulation was a hot topic at Sibos this year. With multiple laws and regulations coming into force, impacting everything from capital requirements to trade reporting, industry participants called for greater cooperation between global regulators, market infrastructures and institutions. While the consensus was that regulators and the market are moving in the right direction by focusing on increasing transparency, many of the Sibos panelists believed there was a need to assess the cumulative impact of all the regulations in order to work together to create long-term solutions.</p> International cooperation and global regulatory harmonization were topics that were highlighted throughout the four days. Even though the regulatory changes have been discussed for some years, panelists still noted their complexities – not least in the European Union, which has 28 markets.</p> Nevertheless, cooperation was considered a vital step for the industry and regulators going forward when implementing laws and regulations across the world’s largest financial markets.</p> Market infrastructure firms were also urged to collaborate further with regulators to define industry rules and create a common rulebook and a leaner, more efficient infrastructure. The inception of CLS and TARGET2-Securities were highlighted as examples of what the industry and regulators could achieve through sound technological investment and international cooperation.</p> According to panellists, a transparent market infrastructure increases reliability and efficiency, while a lack of harmonization in international rules drives up costs, creating opportunities for regulatory arbitrage.</p> There was no doubt that regulatory authorities had the same objective – increasing transparency, reducing systemic risk and protecting investors and the wider financial system. The problem for many industry participants, however, was that the devil is in the detail – as regulators have started to deal with the complexity of the new rules and institutions strive to comply, the original principles are not as simple and straightforward as originally expected.</p> Harmonization of laws and regulations would be a major step forward for the entire industry.</p> Regulatory panel discussion: Principles for Financial Market Infrastructures</h3> In April 2012, the BIS committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) published ‘Principles for Financial Market Infrastructures’, a set of 24 principles governing the management of risks associated with Financial Market Infrastructures (FMIs).</p> Jurisdictions around the world are currently in the process of implementing these principles into their regulatory frameworks to foster the safety, efficiency and resilience of FMIs. The discussion centered on whether there are regional differences in becoming compliant and the impact on the marketplace and participating financial institutions.</p> David Puth</strong>, CEO of CLS</strong> participated in the panel discussion, outlining CLS’s view on, and compliance with, the principles. CLS must comply with 19 of the 24 principles. A number of key talking points were raised including:</p> Will CPSS-IOSCO impact on banks as well as FMIs? </strong></p> The Principles for FMIs reflect a decision taken by CPSS-IOSCO to reduce the risks associated with trading and settlement. As such, all market participants will be affected by the broader set of decisions taken by CPSS-IOSCO. Banks, as customers of FMIs, will benefit from FMIs compliance with the principles.</li> </ul>How will your business comply with the CPSS-IOSCO principles? </strong></p> Compliance is a necessity. CLS is the global standard for the settlement of FX and has proven its resilience and capacity during periods of increased trading and market stress. Compliance with regulatory standards is a priority for CLS, in light of the fact that the business operates on a global scale with oversight provided by 22 central banks. CLS already complies with the Core Principles for Systemically Important Payment Systems, and is conducting a self-assessment against the Principles for FMIs now, even though not yet mandated by US regulators. CLS expects to comply with the new Principles for FMIs.</li> </ul>Looking beyond the 24 principles, what could be the impact of regulation on markets in general, specifically Market Infrastructures? </strong></p> Global harmonization is the next logical step towards full transparency and a level playing field for all. It’s an important principle for nations looking to regulate global financial markets because it is a defense against regulatory arbitrage.While regulatory harmonization has been relatively easy to articulate and understand, in practice it has been hard to achieve. The exemption for FX swaps and forwards from OTC derivatives requirements under Dodd-Frank provides a good example.News that the CFTC and European Commission will meet in January to evaluate progress on establishing more harmonized cross-border rules under the ‘Path Forward’ initiative should also be welcomed by market participants. To date the FX industry has done a good job of maintaining a dialogue with policy makers and regulators.</li> </ul>Cyber-Security: The battle continues</h3> The financial industry faces an increasing array of internal and external cyber threats and with cybercrime on the rise, collaboration between banks is necessary to stay ahead. CLS’s Chief Technology Officer, Sankar Aiyar joined the Corporate Forum panel discussion, alongside senior members of J.P. Morgan, Akamai Technologies and InformationWeek.</p> Discussion points included:</p> Cyber-security should be considered an investment, not a cost-centre</strong>During the panel discussion, Nigel Hayward, CTO, International Treasury Services, J.P. Morgan noted that his institution would spend another quarter of a billion dollars on cyber-security over the next few years, yet only 27% of the audience members polled said they would increase spending by more than 10% in 2014. A further 32% said they would increase spending on cyber defenses by only 1%-10%.</p> There are ‘haves’ and ‘have-nots’ when it comes to security</strong>In the US most banks are members of the Financial Services Information Sharing and Analysis Centre (FS-ISAC). However, in discussion with the panel, Rich Bolstridge, Chief Strategist, Financial Services, Akamai Technologies, pointed out that regional or smaller banks – namely credit unions – may not have access to the same level of intelligence.</p> Beware the ‘hacktivist’</strong>In addition to traditional forms of cyber attack, the panelists also spoke of the growth of wildcard attacks such as ‘hacktivists’, that launch attacks not to steal information or commit financial crime, but merely to prove a political point. Sankar Aiyar noted that hacktivists may take more risks than other forms of cyber attacker. In his opinion, a worst-case scenario could be an attack that corrupted an organization’s data or brought down a key service provider such as a central bank’s system. In his words: “It’s not just about defending your castle, but about being in an interconnected world.”</p> Regulatory guidance?</strong>An audience poll asked the question: How much new regulation would they like to see around cyber-security? 75% wanted to see more guidance from regulators but not a more prescriptive approach. Sankar Aiyar pointed out with regard to information sharing, that in the US, regulators encouraged all systemically important banks to be members of FS-ISAC, but that smaller banks may not have higher-level security clearance to get real-time information.</p> For more information about collaboration on critical security threats facing the global financial services sector, visit: http://www.fsisac.com/</a>.</p> </p>