From: DTCC
Survey Polls Industry Leaders on Biggest Challenges to Mitigating Risk
NEW YORK--(BUSINESS WIRE)--May 09, 2013--
The impact of new regulations in the financial services industry is by far the most important systemic-risk concern facing the global capital markets, according to a recent client survey conducted by The Depository Trust & Clearing Corporation (DTCC). The survey revealed that 82% of industry leaders ranked meeting new regulatory requirements as a top concern in mitigating systemic risks.
“Given the massive scope of Dodd-Frank, CPSS IOSCO, Basel III and other new or enhanced regulations, the tremendous commitment of time and resources necessary to build and maintain compliance structures is clearly keeping people up at night,” said DTCC’s Michael Leibrock, Vice President, Operational & Systemic Risk Management, who cited comments received by respondents to the survey. “The findings suggest that if execution of regulatory mandates is done poorly, that could actually create risks which supervisors are trying to avoid, including the potential failure of a firm as a worst-case scenario,”
Top Ten Risks
DTCC’s survey ranked the following ten issues in this order of importance to its clients. In two cases, there were ties.
Top Ten Risks Response % Commentary by DTCC Clients
-------------------------------- ---------- --------------------------------
1. Impact of New Regulations 82% The time and resources required
to meet new regulators could
result in companies "taking
their eye off the ball" from
managing day-to-day risk.
-------------------------------- ---------- --------------------------------
2. Disruption or Failure of a 61% The "too big to fail" issue is
Key Market Participant still a concern as the
interconnected nature of the
financial system could cause a
domino effect if one major
player fails.
-------------------------------- ---------- --------------------------------
3. Cyber Security 53% Small firms with limited
resources for IT departments or
constant technology upgrades are
considered the weakest link in
combating cyber threats.
-------------------------------- ---------- --------------------------------
4. Significant Business 45% Unpredictable events such as
Continuity Event natural disasters and terrorist
acts, as well as more
predictable events such as
extreme weather, are both of
considerable concern.
-------------------------------- ---------- --------------------------------
5. Sudden Dislocation in Stock 37% With yields on most bonds at or
or Bond Market near historical lows, there is a
significant risk that even a
modest increase in yields could
result in massive losses in the
fixed income markets.
-------------------------------- ---------- --------------------------------
6. U.S. Recession 37% The ability of the U.S.
government to address the
deficit and the cumulative
effects of heavy regulations are
concerns.
-------------------------------- ---------- --------------------------------
7. Partial or Full Eurozone 35% The over-leveraged nature of
Breakup certain Eurozone countries and
lack of fiscal/monetary
integration across the region,
could lead to a forced or
voluntary exit of one or more
members.
-------------------------------- ---------- --------------------------------
8. Major Compliance or 35% Respondents note a troubling
Governance Event trend in compliance violations
by large financial
institutions.
-------------------------------- ---------- --------------------------------
9. Interconnection Risks 25% Increasing linkages among global
financial firms, combined with
the high speed of transactions,
is a cause for concern.
-------------------------------- ---------- --------------------------------
10. High-Frequency Trading 18% Faster trading and algorithmic
trading could lead to future
anomalies in the securities
markets.
-------------------------------- ---------- --------------------------------
Of the 80 institutions that responded to the survey, banks and broker/dealers comprised the majority.
DTCC’s Role as Risk Mitigator
With 40 years of experience providing custody, netting, clearing and settlement services to the financial community, DTCC is the world’s largest post-trade processing infrastructure. In July 2012, three of its subsidiaries were designated Systemically Important Financial Market Utilities* by the Financial Stability Oversight Council. Because of its designation and central role as a risk mitigator for the financial markets, DTCC has an inherent interest in keeping a pulse on its clients’ positions on risk.
“The cooperative nature of our relationships with all our constituents has given us unparalleled insights into their needs. As a result, we have been able to develop many pioneering tools to manage risk across a broad range of financial instruments and market sectors,” said Noel Donohoe, DTCC Group Chief Risk Officer.
Among those tools are:
-- A Mortgage-Backed Securities (MBS) Central Counterparty to reduce risk
and costs in the $100-trillion-a-year U.S. market for MBS.
-- Expansion of the Global Trade Repository infrastructure worldwide and by
asset class to support reporting requirements for over-the-counter (OTC)
derivatives.
-- The CFTC Interim Compliant Identifier (CICI) Utility to support OTC
derivatives reporting requirements.
In addition, DTCC has provided the industry with proposals to:
-- Shorten the settlement cycle for U.S. cash securities transactions to
mitigate counterparty risk, reduce costs and optimize capital.
-- Continue reducing and eventually eliminate the remaining physical
securities certificates in the U.S. to reduce risk and costs, and boost
efficiencies.
-- Establish a common infrastructure to provide certain middle office
processes that support the front and back offices to reduce costs and
operational risk for financial institutions and advance straight-through
processing.
-- Introduce a global straight-through margin processing utility for
over-the-counter (OTC) bilateral and cleared derivatives trades in
response to significant changes resulting from regulatory, industry and
market drivers.
* Being designated a Systemically Important Financial Market Utility means a company is required to meet prescribed risk-management standards and heightened oversight by the relevant US regulatory authorities. Systemic risks are generally defined as developments that threaten the stability of the financial system as a whole and consequently the broader economy.
About DTCC
DTCC has operating facilities and data centers around the world and, through its subsidiaries, automates, centralizes, and standardizes the post-trade processing of financial transactions for thousands of institutions worldwide. With 40 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry, simplifying the complexities of clearance, settlement, asset servicing, global data management and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, derivatives, money market instruments, syndicated loans, mutual funds, alternative investment products, and insurance transactions. In 2012, DTCC’s subsidiaries processed securities transactions valued at approximately US$1.6 quadrillion. Its depository provides custody and asset servicing for securities issues from 131 countries and territories valued at US$37.2 trillion. DTCC’s global trade repositories record more than US$500 trillion in gross notional value of transactions made worldwide.