CASLA: The market faces challenges with regulatory definitions
11 June 2024 Canada
Image: Feng_Yu/stock.adobe.com
Regulatory requirements need to be much clearer, agreed panellists at the CASLA conference in Toronto.
The panel discussion, titled ‘Regulatory Discussion: Who is Drinking and Who is Paying?’, applied a Croatian phrase to the subject of regulations, typically denoting a confused and disorganised situation.
In light of current regulations, particularly Basel III Endgame and the US Securities and Exchange Commission’s (SEC) 10c-1a, the speakers concurred the phrase was apt.
Focusing on the Basel III Endgame, the panel outlined key issues that the regulation has created for banks.
Firstly, they discussed potential problems with defining investment grade counterparties under Basel III Endgame, and how narrowing this definition could impact capital treatment of certain assets.
The session also discussed concerns from beneficial owners regarding the operational risk framework, highlighting the additional demands it will place on overall bank balance sheets by assigning additional capital requirements based on stress testing results.
One panellist specifically noted increases in market risk, pointing to challenges for firms’ business model, operations, as well as for franchise optimisation.
When questioned on whether the regulation really would be the ‘endgame’, one speaker was dubious. They did, however, acknowledge that the collective impact of the regulation would highlight some of the gaps within market infrastructure that could be built on.
Discussion then moved to consideration of 10c-1a, highlighting the numerous questions that the regulations are yet to answer.
For example, questions remain around what constitutes a "reportable event" and how much new development work will be required from existing SFT reporting systems.
Likewise, speakers explained that questions of jurisdiction still persist, and that there could be a potential overlap with Securities Financing Transactions Regulation (SFTR) requirements. In essence, they suggested, there needs to be significantly greater clarification regarding these reporting requirements.
As the panel concluded, discussion reverted back to the opening title: who will be drinking and who will be paying?
For one panellist, the issue comes down to capacity. The Canadian market might have some success, they posed, arguing that the size of the US Treasury clearing model might take a while for everyone to have sufficient access to it.
Getting new standard documents that are modern and useful for this purpose is going to be really important, the panel noted.
The speakers expressed being unsure if they can get there in preparation for implementation of these rules, or at least in a way that is generally useful for the market at large. But they are trying really hard to make that happen.
The panel discussion, titled ‘Regulatory Discussion: Who is Drinking and Who is Paying?’, applied a Croatian phrase to the subject of regulations, typically denoting a confused and disorganised situation.
In light of current regulations, particularly Basel III Endgame and the US Securities and Exchange Commission’s (SEC) 10c-1a, the speakers concurred the phrase was apt.
Focusing on the Basel III Endgame, the panel outlined key issues that the regulation has created for banks.
Firstly, they discussed potential problems with defining investment grade counterparties under Basel III Endgame, and how narrowing this definition could impact capital treatment of certain assets.
The session also discussed concerns from beneficial owners regarding the operational risk framework, highlighting the additional demands it will place on overall bank balance sheets by assigning additional capital requirements based on stress testing results.
One panellist specifically noted increases in market risk, pointing to challenges for firms’ business model, operations, as well as for franchise optimisation.
When questioned on whether the regulation really would be the ‘endgame’, one speaker was dubious. They did, however, acknowledge that the collective impact of the regulation would highlight some of the gaps within market infrastructure that could be built on.
Discussion then moved to consideration of 10c-1a, highlighting the numerous questions that the regulations are yet to answer.
For example, questions remain around what constitutes a "reportable event" and how much new development work will be required from existing SFT reporting systems.
Likewise, speakers explained that questions of jurisdiction still persist, and that there could be a potential overlap with Securities Financing Transactions Regulation (SFTR) requirements. In essence, they suggested, there needs to be significantly greater clarification regarding these reporting requirements.
As the panel concluded, discussion reverted back to the opening title: who will be drinking and who will be paying?
For one panellist, the issue comes down to capacity. The Canadian market might have some success, they posed, arguing that the size of the US Treasury clearing model might take a while for everyone to have sufficient access to it.
Getting new standard documents that are modern and useful for this purpose is going to be really important, the panel noted.
The speakers expressed being unsure if they can get there in preparation for implementation of these rules, or at least in a way that is generally useful for the market at large. But they are trying really hard to make that happen.
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